Posts Tagged ‘national security’

New White House Report, Authored by Trade Hawk, Blasts Chinese ‘Economic Aggression’

June 20, 2018

Study by Peter Navarro lays out Trump administration’s argument for tariffs

A worker in Nantong loads a roll of steel at a shipyard in May. The Trump administration in March imposed additional tariffs on all imported steel and aluminum, a move aimed at ratcheting up pressure on China to shut domestic steel and aluminum plants.
A worker in Nantong loads a roll of steel at a shipyard in May. The Trump administration in March imposed additional tariffs on all imported steel and aluminum, a move aimed at ratcheting up pressure on China to shut domestic steel and aluminum plants. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

WASHINGTON—The Trump administration is dialing up its rhetoric against Chinese trade practices, accusing Beijing in a report released Tuesday of waging a systematic campaign of “economic aggression.”

The release of the paper comes a day after President Donald Trump touched off a new phase of market turmoil by threatening expanded tariffs on Chinese imports. The policy and the document meant to justify it reflect the mounting influence of its chief author, White House trade adviser Peter Navarro, who has been shaping and encouraging Mr. Trump’s most hawkish trade positions since the 2016 campaign.

Titled “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World,” the 65-page report doesn’t suggest any new policies beyond the trade and investment restrictions already announced or under consideration, nor does it break new ground on Chinese trade practices. The study, which includes 300 footnotes and a 30-page appendix, consists of a synthesis of existing public reports examining Chinese economic policies.

But the report intensifies the administration’s bellicose tone toward China and provides a window on the logic framing the internal debates shaping the emerging policies. For much of Mr. Trump’s first year in office, Mr. Navarro was marginalized and his views diluted by aides who held a more traditional free trade doctrine. The “Economic Aggression” report is the first one issued by the small White House Office of Trade and Manufacturing Policy created for Mr. Navarro just over a year ago.

It follows a much longer and more detailed report issued by the U.S. Trade Representative in March that provided the initial justification for the tariffs on $50 billion in Chinese imports, currently slated to take effect July 6. That study accuses China of “unfair” practices like forcing American companies to turn over intellectual property, and of implementing “unreasonable” and “discriminatory” policies. It focuses narrowly on technology-related policies and steers clear of phrases like “economic aggression.”

Mr. Trump’s first “national security strategy,” released in December, signaled a harsher pivot on China by branding the country a “strategic competitor” and promised to combat “economic aggression.”

A White House official said Mr. Navarro had been working on the report for many months and that it was reviewed by other agencies before its release. Officials say it was intended to lay out a much broader framework alleging that China, through a comprehensive and coordinated array of policies, “seeks to access the crown jewels of American technology and intellectual property.”

The report breaks down the Chinese government’s alleged economic aggression into five broad categories, including protecting its home market for domestic producers, securing control of natural resources, and seeking dominance of leading-edge high-tech industries. It then lists more than 50 types of policies—from cybertheft of intellectual property to blocking foreign access to key raw materials available mainly in China—that it accuses the Chinese government of deploying to meet those objectives.

A spokesman for the Chinese embassy in Washington didn’t respond to an email seeking comment on the allegations. Chinese officials have in recent months denied Trump administration accusations that the government is improperly accessing U.S. technology.

“This is really Navarro’s phraseology and way of looking at China,” said Scott Kennedy, a China scholar at the Center for Strategic and International Studies, a Washington think tank. “There’s not a sifting through of different kinds of evidence and experiences, but a collection of evidence that confirms a pre-existing position.”

“The Trump administration deserves credit for highlighting genuine barriers and suggesting that the U.S. and China can’t go on with business as usual,” Mr. Kennedy added. “On the other hand, China’s a big and complicated place, and you still need to look at the complexity of the economy.”

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com

https://www.wsj.com/articles/new-white-house-report-authored-by-trade-hawk-blasts-chinese-economic-aggression-1529456401

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Turnbull wants Zuckerburg to answer questions in Australia — Popular money juggernaut has proven it can do what it wants and lie about it

June 7, 2018

Prime Minister Malcolm Turnbull would “love” Facebook boss Mark Zuckerberg to be grilled by Australian lawmakers, he said Thursday, in the wake of revelations the tech giant allowed Chinese smartphone makers access to user data.

© GETTY IMAGES NORTH AMERICA/AFP | Prime Minister Malcolm Turnbull would “love” Facebook boss Mark Zuckerberg — seen here at the US Congress — to be grilled by Australian lawmakers

The social media behemoth has drawn renewed criticism after confirming it shared data with Chinese electronics firms, including Huawei which has been banned by the US military over cyberespionage concerns.

Image result for Huawei, photos, corporate

Canberra has recently moved to strengthen its own intelligence capability amid growing fears of foreign, particularly Chinese, political interference.

“Certainly there are a lot of concerns about Facebook — about privacy,” Turnbull told reporters in Brisbane. “I would welcome Facebook coming and testifying before our parliamentary committees.

“Of course, we’d love to see the boss,” he said when asked if Zuckerburg should appear personally.

Social networks had rapidly become “dominant in every respect” of people’s lives, the prime minister added, and it was important users were aware of how their data was used.

The deputy chair of Australia’s joint intelligence and security committee, Anthony Byrne, said the Facebook boss needed to explain to Australia’s 15 million Facebook users why it was sharing their data with Chinese firms.

“It is completely unacceptable that information from Facebook users has been slyly handed over to Huawei by Facebook,” he told the Australian newspaper.

“I want to know why Mr Zuckerberg allowed this to happen. If need be, he will be invited to appear before the (committee) in a public hearing to explain himself to our committee and the Australian people.”

The revelations come weeks after Zuckerberg was grilled in US Congress about the hijacking of personal data on some 87 million Facebook users by Cambridge Analytica, a consultancy working on Donald Trump’s 2016 election campaign.

© GETTY/AFP/File / by Rob Lever | Some lawmakers say Facebook CEO Mark Zuckerberg, seen here at an April congressional hearing on personal data protection, should return to explain its deal allowing smartphone makers to access user information

Facebook said its contracts with phone makers placed tight limits on what could be done with data, and information obtained by Huawei was not stored on the firm’s server.

The social media giant said it was winding up the interface arrangements with device makers and its integration partnership with Huawei would end this week.

Huawei has said that it has never collected or stored any Facebook data and has claimed any national security concerns were unfounded.

AFP

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Make America 1929 again — Trump’s Trade War — Where’s the common sense in this?

June 1, 2018
The president is committed to the pursuit of a trade war even if it costs the country dearly
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Image result for donald trump

By Edward Luce 


The Republican senator, Ben Sasse, put it best: “‘Make America Great Again’ shouldn’t be ‘Make America 1929 Again’.”

Most of the world, including the majority of America’s business community, see Donald Trump’s punitive trade actions in a similar light. They are searching for economic logic where none exists. His impulse is political. Though slapping tariffs on metals and car imports will lead to a net loss of American jobs, Mr Trump’s actions are meant for the “forgotten American”. They will feel noticed, even if it costs them dearly.

The biggest price tag is geopolitical. Mr Trump’s decision to impose the tariffs on national security grounds was simply a matter of convenience. The notorious section 232 of the Trade Expansion Act has only been used twice before — each time with some justification. Mr Trump is barely trying to make the national security case against European or Canadian metal imports. He chose 232 because the law gives the US president maximum leeway to do what he likes.

He is using the same law to justify impending punitive duties on foreign car imports. But what goes round may come round. Having broken a cardinal rule of transatlantic trade relations, Mr Trump will not be able to unbreak it. He is replacing a system of rules with political whim. The correct free trade answer would be for Europe to offer no response at all. But the European Union, which has a list of retaliatory targets, including Harley-Davidsons, Bourbon and jeans, is politically obliged to retaliate. Brussels will also take the US to the World Trade Organization’s disputes resolution court.

Then there is China. Common sense would dictate that Mr Trump band together with its main trading partners and allies to pressure China to open up its “Made in China 2025” project to global investment rules. Other countries share US complaints about China’s forced technology transfer. But Mr Trump is alienating allies just as he could most use their help.

Failing that, Mr Trump could still have upheld the US rule of law, which had imposed crippling sanctions on ZTE, the Chinese telecoms company, for repeated violations of American sanctions law. Again, however, Mr Trump has spurned economic logic. After a call from Xi Jinping, Mr Trump let ZTE off with a light slap on the wrist. Were his aim to force China’s hand, this was the last thing he should have done. “He had China over a barrel on ZTE and he let it go,” said a European diplomat. “Either he did not know the leverage he had, or he did not care.”

Launching a simultaneous trade war against America’s allies and adversaries conforms to no known international rules of logic. It will raise domestic prices, cut US jobs and reduce America’s global influence. Warning that Mr Trump’s actions could break the WTO will also fall on deaf ears. That may well be an outcome that Mr Trump desires. His chief trade negotiator, Robert Lighthizer, has long nursed a grievance against the global body. Mr Trump rails frequently against unelected American judges. He could doubtless win more retweets with a tirade against unelected foreign judges.

America’s trading partners are learning how to read Mr Trump the hard way. The US president is committed to the pursuit of a trade war of all against all. Drawing parallels to the 1930s, Emmanuel Macron, France’s president, warned this week of “modern-day sleepwalkers”. But that is a poor metaphor. Mr Trump knows exactly what he is doing. The fact that it poses a threat to the global order is a feature, not a bug, of his actions.

edward.luce@ft.com

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https://www.ft.com/content/1b4c56f6-64f2-11e8-a39d-4df188287fff

We Are Only in a “Time Out” — Why We’re Headed For A Long, Cold U.S. And China Trade War

May 27, 2018

A U.S. and China trade war has been put on hold, but maybe not for long. For a few weeks this spring, President Trump’s Make America Great Again and President Xi Jinping’s Made in China 2025 seemed ready to collide. Then came word that China would buy more U.S. goods and the U.S. won’t impose harsh new China tariffs.

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Be cool, it will all work out!” Trump tweeted about talks en route to a recent trade deal that China’s state-run People’s Daily hailed as a “win-win” for both countries.

Trump’s throwback vision — stressing steel, agriculture, autos and oil — may coexist for a while with Xi’s prescription for China’s centrally planned high-tech, high-income future. But the harmony can’t last long in the world’s most important economic relationship.

Already, Trump, under fire over the China trade truce, said Tuesday it’s just a “start” and then Wednesday said talks would likely need a “different structure.” More broadly, the largely status quo deal won’t alter China’s grand plan to overtake America’s technological leadership by nearly any means necessary. Ultimately, China and the U.S. could erect barriers in strategic sectors, creating an economic cold war that severs closely integrated global supply chains.

Blue-chip giants Boeing (BA), Apple (AAPL) and Intel (INTC) all climbed Monday as Wall Street celebrated Trump’s deal with China, though Boeing gave up most of those gains Tuesday. While their near-term future in China may be more secure, the longer-term remains as uncertain as ever.

Made In China Aims To Belt Foreign Rivals

Made in China 2025, the 10-year plan set out three years ago, looks like anything but a win-win for the U.S. or any of Beijing’s other major trading partners. Through state subsidies, acquisitions, market access rules and sometimes outright cybertheft, Xi is bent on closing the technological gap, dominating domestic markets and establishing global leadership in advanced sectors such as semiconductors, robotics and artificial intelligence.

The official aim is to steadily displace foreign components, achieving 40% self-sufficiency by 2020 and 70% by 2025.

Concerns over China’s techno-military ambitions are only heightened by its One Belt, One Road trillion-dollar vision to command global trade by financing infrastructure across Asia and into the Middle East, Europe and Africa. China also created the Asian Infrastructure Investment Bank to rival the World Bank and the D.C. consensus on the global economy.

Yet it’s unclear if the U.S. has the appetite or strategy to thwart Beijing’s ambitions. Just 10 weeks ago Trump tweeted that “trade wars are good, and easy to win” and then demanded a $200 billion cut in the China trade gap. Yet rather than move beyond tariff skirmishes to a full-blown U.S. and China trade war, Trump gladly took Beijing’s pledge to boost American energy and agricultural purchases somewhat. And that modest concession came after Trump pledged leniency for Chinese telecom equipment giant ZTE, which violated sanctions on Iran and North Korea. ZTE had ceased operations after the U.S. banned American companies from working with it.

Why Trump Backed Off U.S. And China Trade War

Why was Trump so quick to relent? He may have favored a unified approach to North Korean diplomacy. Beijing also called his bluff, judging that Trump would have no stomach for a U.S. and China trade war with American farmers in the cross hairs ahead of key midterm elections.

Trump also may have realized he had a much weaker hand than he had imagined.

His initial threat was a 25% tariff on $50 billion worth of high-tech Chinese imports. But Trump tariffs largely would have hit Chinese ventures of U.S. and other foreign multinationals, the Peterson Institute for International Economics found. The tariffs on mostly intermediate goods would have raised U.S. production costs, hurting competitiveness.

“That the tariffs fail to hurt Chinese firms directly should not be a surprise,” wrote Peterson Institute researchers Mary Lovely and Yang Liang. Made in China 2025 is an aspiration, but current Chinese tech prowess still lags that of the U.S. and others, they noted. “It is impossible to hit tomorrow’s exports with today’s tariffs.”

Trump said something similar about his desire to go easy on ZTE, tweeting that it “buys a big percentage of individual parts from U.S. companies.”

A Friday report said that the Trump administration has reached a deal to lift ZTE sanctions in exchange for another financial penalty, restructure management and hire U.S. compliance officers.

Still, the U.S.-China trade relationship remains uneasy.

U.S. And China Trade War: National Security Issues

The Trump administration’s sudden shift from wielding a big stick to selling more carrots, so to speak, reflected a long-running split between businesses’ short-term financial interests and national security concerns about long-term strategic goals, says American Enterprise Institute resident scholar Derek Scissors.

Despite a consensus that America must confront China on trade, both sides “keep fighting over how tough we should be,” he told IBD.

Likewise, Scissors says, a growing consensus holds that the U.S. must act multilaterally to hold China to account. Even Trump had a change of heart about the Trans-Pacific Partnership trade deal cobbled together by President Obama to help counter China’s influence in East Asia. Trump relentlessly criticized the 12-nation deal in the campaign. He dropped TPP, never ratified by the Senate, on his fourth day in office. But he recently told top economic advisor Larry Kudlow to explore getting back in.

Yet saying we should act multilaterally is easier than doing it, says Scissors. He sees no realistic chance for a TPP revival. Instead, Trump is targeting allies with steel and aluminum tariffs and a new probe into auto imports.

For now, America’s strategic drift and Trump’s status-quo trade deal are playing into China’s hands. But Scissors says a cold U.S. and China trade war is coming.

A Cold Trade War With ‘Chinese Characteristics’

“We’re heading into a cold war with Chinese characteristics,” Scissors said. “They aren’t the Soviets.”

Unlike the USSR, China is a rival but not an enemy. And it’s fully integrated with the global economy. “I don’t think it gets as bad,” Scissors said.

Other nations have sought to climb the income ladder via unfair trade policies to build up national champions. Yet “China now has the wealth, commercial sophistication and technical expertise to make its pursuit of technological leadership work,” warned James Lewis of the Center for Strategic and International Studies, in a submission to the Trump administration’s probe of China’s technology and intellectual property practices.

It boasts the world’s fastest supercomputer, half as many tech unicorns as the U.S. (private companies sporting a $1 billion market cap) and wildly successful public companies such as Baidu(BIDU), Alibaba (BABA), Tencent (TCEHY) that can give U.S. FANG stocks a run for their money.

“The fundamental issue for the U.S. and other Western nations, and the IT sector, is how to respond to a managed economy with a well-financed strategy to create a domestic industry intended to displace foreign suppliers.”

Yet there’s also a clear military dimension to China’s ambitions to become the leader in areas including artificial intelligence, robotics and aerospace.

China Economy Takes A Different Road

The premise behind allowing China to join the World Trade Organization in 2001 was that trade would force its state-run system to gradually converge with market economies. That opened the door for U.S. multinationals to outsource their assembly lines, capitalizing on China’s huge pool of low-wage labor. More recently, Chinese companies have been moving up the value chain, aided by strategic deals but also by technology from foreign joint-venture partners as a price of market access.

Many have questioned whether the liberal technology policies of the U.S. and other rich nations ever made sense. Yet now that Beijing is directing a $300 billion national “self-sufficiency” campaign to minimize reliance on technology from the U.S., Germany, South Korea and others, its bid to buy technology has been met by a chill, if not paranoia.

U.S. Blocks China Technology Takeovers

In 2015, when Beijing spelled out Made in China 2025, Chinese investments in U.S. tech startups surged to $9.9 billion from $2.3 billion a year earlier. The tide began to turn at the end of 2016 when President Obama, on the advice of the Committee on Foreign Investment in the U.S. (CFIUS), blocked the sale of a German chipmaker’s U.S. unit to Grand Chip Investment GMBH, owned by a Chinese company.

Last year, President Trump nixed a bid by Chinese investors to buy Lattice Semiconductor. In March, Trump blocked a $117 billion Broadcom (AVGO) offer for Qualcomm (QCOM) on national security grounds. The apparent fear was that Broadcom, ready to move its headquarters to the U.S. from Singapore, would sandbag Qualcomm’s 5G wireless R&D and give a leg up to China’s Huawei. Facing pressure from U.S. lawmakers, AT&T (T) and Verizon (VZ) this year dropped plans to sell Huawei’s new phone in America.

Qualcomm has long been in Beijing’s sights. China has threatened to derail Qualcomm’s mergerwith Dutch chip firm NXP Semiconductors (NXPI). In 2015, Qualcomm ponied up $1 billion to get out from under a Chinese antitrust probe. Qualcomm seemed to have bought regulatory tolerance, in part by lending its technology to a joint venture with Guizhou Province to produce server chips.

China has used such strong-arm tactics to gain proprietary technology, costing U.S. firms upward of $200 billion a year, according to some estimates.

But if Beijing won’t give up its tacit encouragement of technology transfer as a cost of doing business in China, the U.S. Congress could step into the breach.

Congress is weighing legislation to beef up the CFIUS to let it oversee more transactions, including technology transfer agreements, bankruptcy sales and early-stage venture capital deals. The VC industry warns that banning Chinese funds from U.S. investments will push startups to migrate elsewhere.

The Trump administration reportedly has mulled curbing Chinese citizens’ participation in advanced research at U.S. universities. A Duke University researcher is believed to have transferred knowledge to develop China’s new stealth fighter jet.

If China continues to resist competitive market dynamics, “Western nations will naturally turn from managed integration to something more self-protective,” Daniel Rosen, founding partner of the Rhodium Group research firm, wrote in Foreign Affairs.

Trade War Costs: ‘Trillions Of Dollars’

While products such as toys, furniture and apparel could avoid national security scrutiny, Rosen sees a real risk of disengagement in strategic areas.

Countries don’t follow Econ 101 textbook examples with trade only in finished goods. Modern supply chains and investment links often involve a myriad of countries for a single product, especially for tech goods.

The breakup could happen in stages, as China marches toward Xi’s 2025 goals. Or the impact on technology supply chains could be more violent, like a major slow-moving earthquake.

Consider the chip industry in which U.S. and China trade frictions are highest. China consumes about 60% of the $412 billion semiconductor market, but three-fourths of those chips are imported (even factoring in foreign multinational output in China). No Chinese firms rank in the top 20 producers. Those chips are then assembled into finished electronics like the Apple iPhone, the bulk of which are shipped overseas. High-tech exports in the first quarter totaled $138 billion.

“The cost of disengagement will be severe for China, the United States, and third parties,” Rosen wrote. “It is possible that when China and the United States stare these hard realities in the eye, with adjustment costs likely to run into the trillions of dollars over the next decade, they will seek an alternative.”

But with Beijing working to “hardwire its system not to converge,” a long-term U.S. and China trade war becomes increasingly likely, he said.

China’s leaders aren’t willing to trust their country’s future to the free market. Wages in China have leapt above those in Brazil and Mexico and can’t compete with Vietnam or India. The working-age population is shrinking and will keep doing so for decades. To a large extent, if China is going to remain the world’s manufacturing giant and join the ranks of rich nations, it will have to depend on robots and other technology, such as artificial intelligence.

China’s ascendancy is hardly a sure thing. “Like many grandiose ambitions of central planning, the more spectacular elements will likely fall by the wayside,” Council on Foreign Relations research associate Lorand Laskai wrote of Beijing’s AI roadmap. “However, the plan might still succeed if only because China is committing resources to a societywide AI push” and reorienting the education system to train Chinese students to work with AI.

https://www.investors.com/news/us-china-trade-war-donald-trump/

Trump to let China’s ZTE ‘reopen’ after it pays $1.3bn fine

May 26, 2018

Decision comes despite lawmakers’ criticism over president’s trade dealings with Beijing

Image result for ZTE, reuters photos

© Reuters

Shawn Donnan in Washington

Donald Trump said he would let Chinese telecoms company ZTE “reopen” after paying a $1.3bn fine and meeting other conditions, despite intense criticism from Republicans and Democrats in Congress of the US president’s trade dealings with Beijing.

In messages posted on Twitter on Friday evening, Mr Trump blamed Democrats and the administration of his predecessor Barack Obama for having let ZTE “flourish with no security checks” for years.

“I closed it down then let it reopen with high level security guarantees, change of management and board, must purchase US parts and pay a $1.3 Billion fine. [Democrats] do nothing but complain and obstruct,” the president said. “They made only bad deals (Iran) and their so-called Trade Deals are the laughing stock of the world!” 

The move comes as the Chinese government continues to press for a reprieve for ZTE from a ban on sourcing US parts imposed in April by the US Commerce department. The ban was introduced after ZTE broke the terms of a 2017 plea deal struck after it was caught violating US sanctions on Iran and North Korea.

According to people briefed on the situation, Chinese officials have demanded a change in the ZTE punishment as a condition of engaging in broader trade talks. Those are due to resume in Beijing on June 2 when Commerce secretary Wilbur Ross leads a delegation to China to negotiate new Chinese purchases of US agricultural and energy exports.

The accusation that the Obama administration did nothing over ZTE is at odds with the facts — the company was first prosecuted for violating sanctions by Obama officials. The Trump administration, in its third month in office in March 2017, announced a $1.2bn plea deal with ZTE based on years of work done by career officials at the Commerce department. When ZTE was caught violating the terms of that plea deal earlier this year, US authorities imposed the seven-year sourcing ban that had been suspended as part of the 2017 agreement.

If the administration goes through with this reported deal, President Trump would be helping make China great again. Both parties in Congress should . . . stop this deal in its tracks

Senator Chuck Schumer

Mr Trump drew criticism from both Republicans and Democrats this month for intervening on ZTE’s behalf after being asked to by Xi Jinping, just as the Chinese leader was preparing to send his top economic emissary, Liu He, to Washington for sensitive trade negotiations.

At the time Mr Trump tweeted: “Too many jobs in China lost. Commerce Department has been instructed to get it done!”

The perception that Mr Trump was using an enforcement case as a chip in a trade negotiation has attracted opposition from many supporters of his hardline trade policies, who see him as violating a campaign pledge to take on Beijing. The criticism on Capitol Hill has been led by Marco Rubio, the Republican senator and former presidential candidate.

Ahead of Mr Trump’s announcement on Friday, Mr Rubio vowed again to have Congress oppose any deal to overturn the Commerce department ban on ZTE.

Legislators in both the House of Representatives and the Senate have already passed bipartisan amendments that would limit the administration’s ability to lift the ban.

“Yes they have a deal in mind. It is a great deal . . . for #ZTE & China,” Mr Rubio tweeted after the New York Times first reported a deal had been struck. “#China crushes U.S. companies with no mercy & they use these telecomm (sic) companies to spy & steal from us. Many hoped this time would be different. Now congress will need to act.”

Whether Congress will be able to assemble a veto-proof majority to pass measures blocking a ZTE deal is unclear and the administration has been lobbying Republicans in recent days.

Chuck Schumer, the Democratic minority leader in the Senate, on Friday accused Mr Trump of betraying US national security. 

“If the administration goes through with this reported deal, President Trump would be helping make China great again,” Mr Schumer said in a statement. “Simply a fine and changing board members would not protect America’s economic or national security, and would be a huge victory for President Xi, and a dramatic retreat by President Trump. Both parties in Congress should come together to stop this deal in its tracks.” 

ZTE declined to comment.

Additional reporting by Xinning Liu in Beijing

https://www.ft.com/content/abc850f8-607f-11e8-9334-2218e7146b04

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Trump Says China’s ZTE to Pay $1.3 Billion Fine to Re-Open — But will Congress agree?

May 26, 2018

President Donald Trump said the U.S. would allow Chinese telecommunications-equipment maker ZTE Corp. to remain in business after paying a $1.3 billion fine, changing its management and board and providing “high-level security guarantees.”

Image result for ZTE photos

In a tweet Friday evening, Trump confirmed a deal that his administration had outlined for members of Congress, according to two people familiar with the matter. Lawmakers in both parties have expressed concern over his decision to soften an earlier U.S. action against ZTE over what his commerce secretary called “egregious” violations of sanctions on Iran and North Korea.

Trump took a jab at Democrats in his tweet, saying that Senate Minority Leader Chuck Schumer and former President Barack Obama “let phone company ZTE flourish with no security checks.”

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Under the deal for ZTE to resume operations, it will also hire American compliance officers to monitor its operations according to the people, who spoke on condition of anonymity. Once ZTE complies, the Commerce Department will lift an order under which the company had been cut off from U.S. suppliers including Qualcomm Inc., effectively shutting down its business.

A deal on ZTE has broad implications beyond the woes of the company. The U.S. and China are engaged in high-stakes talks on steel trade and intellectual property rights under the looming threat of punitive tariffs. U.S.-traded shares of NXP Semiconductors NV rose 4.7 percent after the announcement, as signs of better U.S.-China relations bode well for Chinese approval of Qualcomm’s purchase of the Dutch chipmaker.

Image result for qualcomm, photos

A representative for ZTE declined to respond in a text message. China’s Ministry of Commerce didn’t immediately reply to a faxed inquiry.

Trump said earlier this week he ordered a reconsideration of penalties against ZTE as a favor to China’s President Xi Jinping, as the company estimated losses of at least $3.1 billion from the U.S. technology ban.

The plan is further inflaming tensions between the White House and Congress over trade policy in a week when Republicans blasted the administration for contemplating tariffs on auto imports.

“Yes they have a deal in mind. It is a great deal … for #ZTE & China,” Senator Marco Rubio, a Florida Republican, tweeted on Friday.

Schumer said that “both parties in Congress should come together to stop this deal in its tracks.”

Congressional Approval

The Senate on Thursday released a defense policy bill containing a provision requiring Trump, before making any ZTE deal, to certify with Congress that ZTE hasn’t violated U.S. law for the past year and is cooperating with U.S. investigations.

“ZTE presents a national security threat to the United States — and nothing in this reported deal addresses that fundamental fact. If President Trump won’t put our security before Chinese jobs, Congress will act on a bipartisan basis to stop him,” said Maryland Democratic Senator Chris Van Hollen, the author of the Senate provision.

It’s unclear if Congress will be able to muster veto-proof majorities needed to block the president on ZTE.

Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross held a meeting with GOP senators on Wednesday laying out the ZTE proposal. People briefed on the meeting said lawmakers were told to give the administration room to negotiate the matter and asked them to tone down public criticism of the deal.

After the briefing, John Cornyn of Texas, the No. 2 Republican in the Senate, expressed support for placing compliance officers at ZTE. “That would be pretty remarkable,” he told reporters. “Having somebody inside the company to observe what’s going on would be very valuable.”

Senate Foreign Relations Committee Chairman Bob Corker of Tennessee declined to comment on the idea.

On Thursday, the House passed its own defense policy bill with language banning the Pentagon from purchasing ZTE technology.

Iran Violations

ZTE ran into trouble in 2016 for violating U.S. laws restricting the sale of American technology to Iran. An agreement in 2017 called for the company to pay as much as $1.2 billion and penalize the workers involved, in what was the largest criminal fine for the Justice Department in an export control or sanctions case.

In April, the Commerce Department said ZTE instead paid full bonuses to employees who engaged in the illegal conduct, failed to issue letters of reprimand and lied about the practices to U.S. authorities. That led to the seven-year ban.

Ross plans to visit Beijing on June 2-4, and China has made saving ZTE one of its priorities. The Trump administration has pushed China to help cut the $376 billion trade surplus with the U.S, with Beijing so far making only vague commitments to buy more U.S. goods, including farm products and energy.

But a hasty compromise on ZTE may expose the administration to further criticism in Congress.

“The ZTE move was very surprising,” said Nathan Sheets, chief economist at PGIM Fixed Income and former undersecretary for international affairs at the Treasury Department under President Barack Obama. “That’s a pretty big concession to the Chinese. If we move down that road, it means we should be getting something back.”

— With assistance by Yuan Gao, Edwin Chan, Andrew Mayeda, and Rachel Chang

https://www.bloomberg.com/news/articles/2018-05-25/trump-administration-said-to-reach-deal-to-keep-zte-in-business

Trump Threatens Allies With New Tariffs, Sowing Global Confusion

May 24, 2018
U.S. scrutinizes auto imports for risk to national security — Germany, China, reiterate committment to multilateralism
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President Donald Trump’s push for tariffs on imported cars and trucks threatened a shake-up of the global auto industry while motivating nations including China and Germany to reiterate commitments of varying strength to free trade.

Toyota’s most popular vehicle in the U.S. is the RAV4 SUV, which isn’t made at any of its U.S. factories.
Toyota’s most popular vehicle in the U.S. is the RAV4 SUV, which isn’t made at any of its U.S. factories. PHOTO: WANG YING/ZUMA PRESS

The U.S. statement late Wednesday that it’s investigating auto imports on national security concerns drew pointed responses from Japan and South Korea — two nations that have been at pains to placate Trump — as well as Germany.

It also ended the temporary calm between the U.S. and China, which in contrast to Washington’s actions announced on Thursday it will reduce import duties on a range of consumer goods in a bid to open its market to outsiders.

The competing headlines demonstrate how the world’s two largest economies are likely set for years of skirmishes over commerce as Trump already backs away from an agreement struck just last weekend with China amid domestic criticism.

“Imposing broad, comprehensive restrictions on such a large industry could cause confusion in world markets, and could lead to the breakdown of the multilateral trade system based on WTO rules,” Japanese Trade Minister Hiroshige Seko said Thursday in Tokyo. Automakers were the biggest drag on Japan’s Topix stock index on Thursday.

Trump’s latest probe will be conducted under Section 232 of a 1960s trade law, the same tool the president invoked in imposing global tariffs on imported steel and aluminum earlier this year. An additional tariff on vehicles of up to 25 percent is also under consideration, according to a person familiar with the matter who asked not to be identified.

Free, Fair Trade

On Thursday, German Chancellor Angela Merkel downplayed her nation’s own discomfort with China’s industrial rise, and locked arms with Premier Li Keqiang in a pointed defense of the multilateral trading order.

“China and Germany are committed to multilateralism, and we are committed to free and fair trade,” Merkel said flanked by Li in Beijing. China’s planned duty cuts on consumer goods would bolster its negotiating stance with the U.S. as talks over averting a trade war continue.

While the threat of new tariffs didn’t specifically point to Germany, it would strike at the heart of the German economy, further straining relations between the two sides as they’re locked in negotiations over steel and aluminum tariffs that are set to hit the European Union on June 1. Trump has made clear that he resents Berlin’s trade surplus, which amounted to 14.2 billion euros ($16.7 billion) last year for Germany’s auto industry alone.

To read more about Germany’s trade relations with China, click here

In response to the new car tariffs, South Korea’s government said it has formed a task force with automakers and car associations to review the potential impact on the local auto industry of the U.S. move and to consider countermeasures.

Beijing also weighed in, with a Ministry of Commerce spokesman saying “China opposes the abusing of national security provisions, which would severely undermine the multilateral trading system, and disrupt the normal trade order.”

Separately, China is planning a tariff reduction in a broad range of consumer goods, which would be effective as early as July 1, and would apply to significantly more product lines than a similar reduction on around 200 items announced last year, according to people familiar with the matter. U.S. Commerce Secretary Wilbur Ross is due to visit Beijing in early June for a further round of meetings.

Click here to see how Mazda and Mexico would be hurt

Trump’s announcement comes as Republican lawmakers prepare for midterm elections in November that will determine whether the party retains its majority in both the House of Representatives and Senate.

“To treat auto imports like a national security threat would be a self-inflicted economic disaster for American consumers, dealers, and dealership employees,” Cody Lusk, president of the American International Automobile Dealers Association, said on Wednesday.

Key States

Trump has made protecting American manufacturing workers — and the iconic auto industry, in particular — a keystone of his administration. Wins in manufacturing states such as Michigan and Ohio were key to his victory in 2016.

The auto-import probe was panned by supporters of open trade.

“I fear that they’ve now crossed the Rubicon into wholesale protectionism,” said Rufus Yerxa, president of the National Foreign Trade Council, a trade policy group representing U.S. companies. “Lots of countries have resorted to protectionism when their economies were doing badly. It almost never works. But Trump may be the first leader ever to do it when the economy is booming. He’s trying to fix a problem that ain’t broke. The auto industry is healthy.”

Read more on the risk of an auto misfire for Detroit

The Commerce Department, which is leading the probe, said in a statement that automobile manufacturing “has long been a significant source of American technological innovation.”

The investigation will examine whether the decline of the U.S. automobile sector threatens to weaken the U.S. economy by reducing research and development, skilled jobs and more advanced manufacturing processes for things like electric and autonomous vehicles.

Hearings, Comment

The department added it will publish a notice soon announcing a hearing date and inviting comment from businesses and the public. The process could last weeks or months before it would present its recommendation to the President, who gets the final say.

Some industry observers saw this latest move as a U.S. tactic to pressure Mexico and Canada to move quickly to agree to an overhaul of the North American Free Trade Agreement. Rules for regional content in cars have been one of the major sticking points in the Nafta discussions.

The U.S. levies a 2.5 percent duty on imported passenger cars and a 25 percent tariff on pickup trucks from countries that are not parties to free trade agreements with it.

Since the 2016 election campaign, Trump has repeatedly threatened to slap new tariffs on imported cars. But it may be tougher for the U.S. to make a national security case with a consumer product such as cars, than it did with steel and aluminum, two materials used in military equipment.

— With assistance by Isabel Reynolds, Connor Cislo, Sohee Kim, Miao Han, James Mayger, and Henry Hoenig

Bloomberg

https://www.bloomberg.com/news/articles/2018-05-24/trump-orders-probe-to-consider-tariffs-on-u-s-auto-imports

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Trump’s Tariff Threat Vexes Global Auto Makers

Plan could involve tariffs of up to 25% and risks disrupting the industry around the world

U.S. trading partners expressed alarm on Wednesday about threatened American tariffs on imported cars, which could hit allies hard and disrupt the industry around the world.

The Trump administration’s plan, which could involve tariffs of up to 25%, follows an earlier battle over steel tariffs and puts the U.S. on a collision course with three of its closest military allies—Japan, South Korea and Germany—all of which are major car exporters.

“If it comes into effect, it would cause very broad restrictions on trade and create disarray in global markets. It is very regrettable,” said Tokyo’s trade minister, Hiroshige Seko.

Toyota Motor Corp. closed down more than 3% in Tokyo trading, and fears of a trade war helped drive the overall Tokyo market 1.1% lower. In South Korea, which sends a third of its car exports to the U.S., Hyundai Motor Co.shares fell 3.5%.

Europe’s auto sector fell 1.5% Thursday morning, with shares of BMW AG BMW -2.98%down 2.6%, Volkswagen AG down 2.1% and Daimler AG DMLRY -2.38% down 2.4%. The German companies generate 17%, 15% and 25% of their revenue in the U.S., respectively, according to FactSet.

The Commerce Department said Wednesday that the Trump administration might use national-security laws to impose tariffs on car and auto-parts imports. President Donald Trump said on Twitter Wednesday, “There will be big news coming soon for our great American Autoworkers.”

The Trump administration recently reached a revised free-trade deal with South Korea and is negotiating with China on a broad range of trade issues, while planning to do the same with Japan. The threat of car tariffs could affect those talks, although it isn’t yet clear how.

Outside of Canada and Mexico, which have a free-trade agreement with the U.S., Japan is the biggest exporter of cars to the U.S. About 11% of light vehicles sold in the U.S. in 2017 were imported from Japan, according to the Center for Automotive Research, an Ann Arbor, Mich., think tank. The center said 56% of the vehicles sold in the U.S. were American-made, while Canada and Mexico accounted for an additional 22%.

To reduce political risk and respond more quickly to market demand, Japanese auto makers have invested billions of dollars since the 1980s increasing production in the U.S. But exports still account for a big percentage of sales at companies such as Toyota and Nissan Motor Co.

Major MarketFrom BMW luxury sedans to Toyota SUVs,exports are big business for Europe andJapan.Value of auto exports to the U.S.Sources: Eurostat (Europe); Ministry of Finance(Japan)Note: Figures converted from euros and yen atcurrent rate.
.billionEuropeJapan2013’14’15’16’17010203040$50

Mr. Trump, a critic of Japan’s trade practices for decades, has already put the U.S. ally in his crosshairs with a 25% tariff on steel. His administration gave temporary or permanent exemptions from that tariff to many allies, but not Japan, prompting a threat by Tokyo at the World Trade Organization to retaliate.

Collectively, Japan sent 1.7 million vehicles to the U.S. last year, and the figure is rising. One reason is American car buyers’ preference for sport-utility vehicles and trucks, which caught the Japanese makers unprepared. They have historically relied on sedan sales and produce most of those in the U.S., but they must rely on Japanese factories to meet the demand for SUVs.

Toyota’s most popular vehicle in the U.S. is the RAV4 SUV, which isn’t made at any of its U.S. factories. More than half are sent from Japan and the rest come from Canada. RAV4 sales are up 9% this year.

Nissan’s best-seller in the U.S. is the Rogue SUV. More than half of the Rogues sold in the U.S. are imported from Japan and South Korea.

Toyota and Nissan declined to comment on the threat of U.S. tariffs and referred to an industry group’s statement that the move, if carried out, would lead to fewer choices and higher prices for American consumers.

South Korean auto factories would also take a blow from tariffs—including some owned byGeneral Motors Co. About a quarter of the 519,000 vehicles made last year in South Korea by GM Korea were shipped to the U.S. If the Detroit auto giant were hit with Mr. Trump’s tariffs, “it would be such an absurd and nonsensical thing,” said Jung Yong-jin, an auto analyst at Seoul-based Shinhan Investment Corp. GM Korea officials weren’t immediately available for comment.

Chinese auto makers barely export to the U.S. at present, but the Trump administration’s proposed tariffs would affect investment plans years in the making.

Global auto makers are increasingly using China as a manufacturing hub. Ford Motor Co. is shifting its global production of the Focus compact car to China, with the expectation that many of those vehicles will be shipped to the U.S.

Chinese Foreign Ministry spokesman Lu Kang said the U.S. rationale for tariffs was unjustified. “We are opposed to the abuse of the national-security clause,” he said. “This will undermine the multilateral trading system.”

Volvo Car Group, which is Chinese-owned, also builds in China for global export. “U.S. tariffs going up would be very bad for us,” said Hakan Samuelsson, Volvo’s chief executive, in an interview earlier this month.

Mr. Samuelsson said it would be unfair to penalize a company like Volvo for selling Chinese-made cars in the U.S. because the company is also building a U.S. plant that will create 4,000 jobs in Charleston, S.C., with half of that facility’s production destined for export.

A tariff on auto parts would hit Chinese companies more directly. The U.S. imported parts valued at $17 billion last year from China, according to customs data—second only to Mexico. That means American consumers might have to pay more for their new cars even if they are U.S.-made because the parts inside would cost more, and replacing old parts could also get costlier.

The U.S. study of tariffs on cars and auto parts stands in contrast to China’s move to slash tariffs on the same items. Chinese tariffs on vehicles will fall to 15% from 25% starting July 1, while auto-parts tariffs will fall to 6% from between 8% and 25%, the government said Tuesday.

Write to Sean McLain at sean.mclain@wsj.com and Trefor Moss at Trefor.Moss@wsj.com

https://www.wsj.com/articles/trumps-tariff-threat-vexes-global-auto-makers-1527142737

Trump administration weighs slapping tariffs on auto imports

May 24, 2018

The US Commerce Department said Wednesday it launched an inquiry that could allow the Trump administration to impose tariffs on auto imports over national security concerns.

Commerce Secretary Wilbur Ross announced he initiated a so-called Section 232 investigation on auto trade — which would provide the legal basis to impose tariffs, if his department finds imports threaten US national security — after speaking with Donald Trump on the matter.

“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Ross said.

Image result for wilbur ross, photos
U.S. Commerce Secretary Wilbur Ross

“The Department of Commerce will conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.”

In a separate statement released by the White House, Trump said he had “instructed” Ross to “consider” kicking off the probe.

“Core industries such as automobiles and automotive parts are critical to our strength as a nation,” Trump’s statement said.

The Trump administration had used the same justification to slap steep tariffs on steel and aluminum, raising the specter of a trade war.

A similar move in the auto industry would open yet another front in the Republican president’s confrontational rows over trade that have drawn global outcry from allies and partners.

The latest announcement comes as negotiations with Canada and Mexico over revamping the continent-wide North American Free Trade Agreement (NAFTA) have stalled over auto demands.

Earlier Thursday, Trump had blamed the US neighbors to the north and south for being “difficult” in talks to renegotiate the pact.

© AFP / by Maggy DONALDSON | Passenger cars make up around 30 percent of Japan’s total exports to the United States and Tokyo has already threatened Washington with retaliation at the WTO for the steel tariffs

– ‘Great American autoworkers’ –

The Wall Street Journal reported earlier Wednesday that Trump was asking for vehicle import tariffs as high as 25 percent.

Trump has frequently lambasted China’s high import duties on foreign cars.

During recent negotiations, President Xi Jinping offered to cut the rate to 15 percent from 25 percent.

The Journal, citing sources in the auto industry, said US moves to retaliate likely would face significant opposition from trading partners and auto dealers that sell imports.

Japan was quick to lash out, with its trade minister Hiroshige Seko saying on Thursday that such a move would “plunge the world market into confusion” and be “extremely regrettable.”

Passenger cars make up around 30 percent of Japan’s total exports to the United States and Tokyo has already threatened Washington with retaliation at the World Trade Organization for the steel tariffs.

In its statement announcing the inquiry, the Commerce Department cited figures showing that US employment in automobile manufacturing had dropped by 22 percent from 1990 to 2017.

Trump appeared to tease Wednesday’s announcement with earlier tweets, saying: “There will be big news coming soon for our great American autoworkers.”

“After many decades of losing your jobs to other countries, you have waited long enough!”

In another missive referring to trade talks with China, he said that, while the discussions were proceeding nicely, “in the end we will probably have to use a different structure.”

Trump — whose protectionist platform helped launch him to the White House — has repeatedly floated the notion of steep tariffs that would shield the US auto industry.

He has specifically targeted Germany, and argued that American cars are slapped with higher tariffs than those imposed on European autos.

US cars sold in the EU are hit with 10 percent duties, while the US imposes just 2.5 percent on cars from the EU.

But Washington imposes 25 percent tariffs on European pick-ups and trucks — which the EU taxes at a much lower 14 percent on average.

by Maggy DONALDSON
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AFP

Trump floats management changes instead of sanctions for China’s ZTE; but Congress will likely balk…

May 23, 2018

U.S. President Donald Trump on Tuesday floated a plan to fine ZTE Corp (000063.SZ) (0763.HK) and shake up its management as his administration considered rolling back more severe penalties that have crippled the Chinese telecommunications company.

Trump’s proposal ran into immediate resistance in Congress, where Republicans and Democrats accused the president of bending to pressure from Beijing to ease up on a company that has admitted to violating sanctions on Iran.

Image may contain: text

Their reaction could complicate Trump’s efforts to win concessions from China that would narrow a $335 billion annual trade gap.

Speaking at the White House, Trump said U.S. technology companies have been hurt by an April Commerce Department decision that prohibits them from selling components to China’s second-largest telecommunications equipment maker. ZTE shut down most of its production after the ruling was announced.

“They can pay a big price without necessarily damaging all of these American companies,” Trump said.

Trump said ZTE may instead face a fine of up to $1.3 billion, new management and a new board of directors, though it was not clear whether he had the legal authority to impose new financial penalties.

That drew a quick response from Republicans and Democrats in Congress.

Some 26 senators, including the chamber’s top Democrat, Chuck Schumer, and No. 2 Republican, John Cornyn, urged the administration in a letter to keep penalties in place for “serial and pre-meditated violators of U.S. law, such as ZTE.”

The Senate Banking Committee also voted 23-2 to make it harder for the president to modify penalties on Chinese telecommunications firms, drawing the support of liberal Democrats like Chris Van Hollen and conservative Republicans like Tom Cotton.

The Republican-controlled House of Representatives is weighing a proposal that would block the sale of ZTE products and those of another Chinese company, Huawei Technologies [HWT.UL], until national security officials certify they are safe. It would be added to a defense-policy bill that Congress typically passes each year.

Congress last year passed a law that required the administration to impose new sanctions on Russia, though similar action this year could be more difficult as the November elections draw near.

According to sources familiar with the discussions, a proposed trade deal with China would lift a seven-year ban that prevents U.S. chipmakers and other companies from selling components to ZTE, which makes smartphones and telecommunications networking gear.

In return, China would eliminate tariffs on U.S. agriculture or agree to buy more farm products from the United States.

The U.S. Commerce Department imposed the ban in April after it determined that ZTE had broken an agreement after it pleaded guilty to shipping U.S. goods and technology to Iran.

 

The ban has threatened the viability of ZTE by cutting off access to companies that supply 25 percent to 30 percent of its components. Suppliers include some of the biggest U.S. tech companies, including Alphabet Inc’s (GOOGL.O) Google, which licenses its Android operating system to ZTE, and chipmaker Qualcomm Inc (QCOM.O).

The U.S. Department of Defense has also stopped selling ZTE’s mobile phones and modems in stores on its military bases, citing potential security risks.

NATIONAL SECURITY

U.S. Treasury Secretary Steven Mnuchin told lawmakers that the treatment of ZTE was not “a quid pro quo or anything else” related to trade, and said it would not undermine national security.

000063.SZSHENZHEN STOCK EXCHANGE
-31.31(-100.00%)
000063.SZ
  • 000063.SZ
  • 0763.HK
  • GOOGL.O
  • QCOM.O

“I can assure you that whatever changes or decisions that are made in Commerce will deal with the national security issues,” Mnuchin told a U.S. Senate appropriations subcommittee.

Republican Senator Marco Rubio said he thought China had gotten the upper hand in recent negotiations on trade and North Korea denuclearization.

“China knows there are those in the administration that desperately want a deal,” he said.

One sanctions expert questioned whether Trump has the legal authority to impose new fines on ZTE, which agreed last year to pay $1.19 billion, including $890 million in fines and penalties, and an additional penalty of $300 million that could still be imposed.

“It looks like this is going to be a case where they’ll have some minor tweaks and declare a victory and move onto the next case,” said Washington lawyer Douglas Jacobson, who represents ZTE suppliers.

Additional reporting by Karen Freifeld, Diane Bartz, Amanda Becker, Richard Cowan, Susan Heavey, Doina Chiacu and David Lawder in Washington and Michael Martina in Beijing; Writing by Andy Sullivan; Editing by Chris Sanders, Paul Simao and Lisa Shumaker

Reuters

U.S. Weighs Curbs on Chinese Telecom Firms Over National-Security Concerns — Electronic Espionage

May 3, 2018

Huawei, ZTE caught in growing tech feud between Washington and Beijing ; retaliation from China is likely

 US President Donald Trump is considering an executive order to stop some sales of Chinese-origin telecommunications equipment in the US, a move that would likely target ZTE. Photo: AFP

WASHINGTON—The Trump administration is considering executive action that would restrict some Chinese companies’ ability to sell telecommunications equipment in the U.S., based on national-security concerns, said several people familiar with the matter.

The move, if it happens, would represent a significant escalation of a growing feud between the U.S. and China over tech and telecommunications. The affected firms likely would include Huawei Technologies Co. and ZTE Corp. , two of the world’s leading telecommunications equipment makers. They have found themselves increasingly in an international crossfire.

The U.S. worry about Chinese telecommunications companies is driven largely by longstanding concerns that the Chinese government could use the companies’ network equipment to spy on or disrupt U.S. networks. Huawei and ZTE have long denied that their equipment poses any security risk.
The U.S. worry about Chinese telecommunications companies is driven largely by longstanding concerns that the Chinese government could use the companies’ network equipment to spy on or disrupt U.S. networks. Huawei and ZTE have long denied that their equipment poses any security risk. PHOTO: MARLENE AWAAD/BLOOMBERG NEWS
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Pentagon officials said this week that they are moving to halt the sale of phones made by the two companies on U.S. military bases around the world. U.S. officials are concerned that Beijing could order manufacturers to hack into products they make to spy or disable communications. Huawei and ZTE have said that would never happen.

The latest action could come in the form of a White House executive order, possibly in the next few weeks, people familiar with the matter said. One possibility under consideration has been curbing the ability of companies doing business with the U.S. government from using network equipment made by companies that could pose a national-security risk.

Significant complexities remain, however, including the exact scope of the possible order, and no final decisions have been made. A spokesman for the White House National Security Council said officials “have no comment on the matter at this time.”

ZTE didn’t immediately respond to request for comment. Huawei declined to comment specifically on the potential executive order but said that security and privacy were key priorities for the company.

“Huawei’s products are sold in 170 countries worldwide and meet the highest standards of security, privacy and engineering in every country [where] we operate globally, including the U.S.,” a spokesman said. “We remain committed to openness and transparency in everything we do and want to be clear that no government has ever asked us to compromise the security or integrity of any of our networks or devices.”

The effort is being driven largely by longstanding concerns that the Chinese government could use the companies’ network equipment to spy on or disrupt U.S. networks. Both companies have long denied that their equipment poses any security risk. But both the U.S. and several of its allies recently have stepped up scrutiny of how the Chinese firms’ equipment is used in networks.

The Tech Arms Race Driving the U.S.-China Trade Dispute

“Made in China 2025” is Beijing’s industrial plan to dominate high-tech industries including robotics, aerospace and computer chips. The Trump administration argues China is using the plan to give its tech companies unfair advantage over foreign rivals. But what is it exactly?

The issue has played into broader friction over trade between the two countries. Longer-term, U.S. officials also are concerned about whether China or Western democracies will win the race to develop next-generation networks.

Already this year, the Commerce Department has banned American companies from selling products to ZTE, over its alleged violation of previous sanctions involving North Korea and Iran. Huawei is under investigation by the Justice Department over similar concerns.

The Federal Communications Commission also recently launched a rule-making process that is expected eventually to lead to curbs—mainly affecting smaller and rural telecommunications firms—on providers’ ability to use federal universal-service funds to buy Huawei and ZTE equipment.

The administration also is beginning to look more closely at finding ways to restrict more kinds of technology transfers from U.S. firms to China.

Chinese officials have warned that they will take steps to retaliate if the U.S. intensifies its efforts against firms such as Huawei.

San Diego-based Qualcomm Inc. has already been caught in the dispute, suffering a delay in its effort to acquire Dutch automotive chip maker NXP Semiconductors NV, a purchase the U.S. company needs to diversify its product line as the smartphone market plateaus. China, which has a say in the deal as one of several countries where the companies have substantial sales or assets, initiated the delay.

Dialing UpU.S. smartphone market share, 2017Source: IDC
1. Apple2. Samsung3. LG4. ZTE5. Lenovo14. Huawei0%10203040

Some U.S. lawmakers of both parties are concerned about the possibilities for sophisticated electronic espionage.

Sen. Mark Warner (D., Va.), the vice chairman of the Senate Intelligence Committee, “does think we have to take seriously the risks potentially posed by foreign telecom in our systems,” a spokeswoman said.

The U.S. and China also are locked in a duel over next-generation networks, with the U.S. aiming to block China’s ambition of developing the technology to build and run them around the world.

Still, the potential U.S. move also raises thorny questions, such as whether it should be limited to core network equipment, or extend to handsets, some industry officials said.

“Addressing global supply chain security concerns has long been a priority for the tech industry,” said Pamela Walker, a vice president at the Information Technology Industry Council, an advocacy group. “Moving forward, we urge policy makers to share information with suppliers and contractors so we can increase the level of security and assurance within the supply chain.”

Officials have considered whether security tests could be used to screen some suspect equipment—a move that could simplify the effort at one level, but also create new complications.

Huawei is the world’s biggest supplier of wireless equipment and No. 3 vendor of smartphones. The Shenzhen-based company has been all but shut out of the U.S. telecom market since a 2012 congressional report said its equipment could be used for spying.

ZTE recently has been the fourth-largest seller of smartphones in the U.S.

Write to John D. McKinnon at john.mckinnon@wsj.com

https://www.wsj.com/articles/u-s-weighs-curbs-on-chinese-telecom-firms-over-national-security-concerns-1525279627

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