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The World’s Greatest Back-Seat Drivers

ZTE store front
photo by Conxa Roda

Roughly six out of 10 American adults believe they would personally be a better president than Donald J. Trump, according to my unresearched estimate. In the United States Senate, that figure is 10 out of 10.

Which is why the institution that calls itself the “world’s greatest deliberative body” (with no more support than I have for my own guesswork) has chosen to be the president’s back-seat driver on an issue where the stakes are merely the relationship between the world’s two largest economies, or maybe a nuclear war.

The U.S. Commerce Department has accused Chinese telecommunications equipment maker ZTE Corp. of repeatedly violating trade sanctions against North Korea, whose emerging nuclear arsenal has been a top American foreign policy concern since the 1990s. Since the Pyongyang regime relies heavily on Chinese economic and trade support, the last four U.S. administrations have sought Beijing’s help in blocking the nuclear aspirations of the Kim regime.

Commerce officials, with Trump’s support, initially ordered a total halt on sales of American semiconductors and other technology to ZTE, which would have amounted to a death sentence for the company. The company relies heavily on U.S.-made parts, such as processors from American chip maker Qualcomm. The April ban shortly led to a production halt.

But Trump later backed away from his initial position, whose ongoing execution would have been extremely embarrassing to Chinese President Xi Jinping. It is fair to conclude, as Trump apparently did, that putting Xi in such a position would make it all but impossible for China to publicly support an enhanced sanctions campaign against North Korea – the stick with which Trump is trying to encourage the North to give up its weapons program. The carrot, which also relies significantly on Chinese help, would be relaxing sanctions and providing future economic aid.

So instead of putting ZTE out of business, in early June Trump ordered Commerce to accept a lesser package of punishments that would include a $1 billion fine, replacement of ZTE’s board of directors, and a company-financed 10-year program of embedded, American-designated sanctions compliance monitors. Even that package must have been a lot for Beijing to swallow, but apparently ZTE was able to clear it with the Xi government.

Maybe the compromise is the right call; maybe it isn’t. Either way, it is the sort of thing that Congress nearly always allows a president to handle, if only to spare its own members the inevitable second-guessing if things go wrong. But not this time.

A bipartisan coalition of Senators used a must-pass defense bill this week as a vehicle to reimpose the fatal technology ban on ZTE. In a joint statement, Marco Rubio (R-Fla.), Chuck Schumer (D-N.Y.), Chris Van Hollen (D-Md.) and Tom Cotton (R-Ark.) said, “We’re heartened that both parties made it clear that protecting American jobs and national security must come first when making deals with countries like China, which has a history of having little regard for either.” The Senate vote was 85-10 in favor of reinstating the ban. The legislation is now subject to negotiation with the House, whose own defense measure did not touch ZTE.

Lawmakers seemed unimpressed by the efforts of Commerce Secretary Wilbur Ross who, The Wall Street Journal reported, met with Republicans in both houses last week in an effort to drum up support for Trump’s deal to save ZTE. Ross emphasized economic benefits, but Republicans who oppose the deal have countered with national security concerns.

Some Republican senators apparently want to show how they can be tougher than Trump on North Korea – toward what end I have no idea, since hardly any American votes are apt to hinge on this. Democrats, led by Senate Minority Leader Schumer, just hate to miss any opportunity to undermine Trump administration initiatives. If Trump had stuck with the original ZTE penalty, it is safe to assume that Schumer and his fellow travelers would have been equally eager to support the lesser penalties that Trump ultimately chose. They would have portrayed Trump as a shortsighted trade warrior and nuclear warmonger in the bargain.

So let’s game this one out. Suppose the House goes along with the Senate provision and Trump either signs the bill or has his veto overridden. What then?

ZTE probably goes out of business – or is merged into another Chinese entity, possibly fellow telecom maker Huawei Technologies Co., with Chinese government support. American chip makers like Qualcomm could hardly afford to lose the entire Chinese equipment market, so any secondary sanctions against Huawei are bound to be mild. The $1 billion penalty and internal monitoring of ZTE will be gone. And Beijing will look for an opportunity to retaliate against an American company of similar prominence, while being less willing to go along with any sanctions against North Korea going forward. It is worth remembering that China wields a veto in the United Nations Security Council.

So why, exactly, is the Senate choosing to try to take an executive decision out of the president’s hands?

Don’t ask me; ask any senator. I’ll bet 10 out of 10 of them can tell you.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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