Trump throws ZTE curveball as big week for US-China trade begins

CNN/ Newswire | 5/14/2018, 11:07 a.m.
With his pledge to save a major Chinese company from crippling US sanctions, President Donald Trump has delivered yet another ...
Donald Trump

Daniel Shane

(CNN Money) -- With his pledge to save a major Chinese company from crippling US sanctions, President Donald Trump has delivered yet another twist in the trade clash with Beijing.

His announcement on Twitter that he's working to give China's ZTE "a way to get back into business, fast" was a sudden shift in the US stance at the start of a big week for trade ties between the world's top two economies.

Washington and Beijing have threatened to impose tariffs on tens of billions of dollars of each other's products, fueling fears of a full-blown trade war.

Talks in Beijing earlier this month aimed at dialing down the tensions failed to produce any major breakthroughs. But Chinese President Xi Jinping's top economic adviser is heading to Washington this week for more negotiations.

American companies will also have a chance to publicly tell the Trump administration what they think about its planned tariffs on Chinese goods.

Here's what to keep an eye on this week.

1. What will happen to ZTE?

The fate of Chinese technology company ZTE has become a major flashpoint in the US-China trade tensions.

Last month, the US Commerce Department blocked American firms from selling parts or providing services to ZTE, which makes smartphones and other telecommunications equipment. The ban was put in place after Washington said ZTE violated a deal in which the Chinese company agreed to pay a $1.2 billion fine for evading US sanctions on Iran and North Korea.

ZTE, which employs around 75,000 people worldwide, has disputed the decision and is appealing it. The company upped the stakes last week by saying it had halted most of its operations because of the ban.

Trump appeared to throw ZTE a lifeline with his tweet Sunday in which he said "too many" Chinese jobs were at risk. The Commerce Department has been "instructed" to get ZTE back into business, he added.

Trump's announcement -- welcomed Monday by Beijing -- should create a more positive backdrop for trade talks.

"The Trump administration is softening its stance and stepping back from using the most destructive weapon in the negotiation," said Ken Cheung, a currency strategist at Mizuho Bank in Hong Kong. "The second round of negotiation should be more constructive."

2. Round 2 of trade talks

That second round of talks is happening this week.

Chinese Vice Premier Liu He will lead a Chinese delegation visiting Washington from Tuesday through Saturday, China's Foreign Ministry said Monday.

"I suspect Liu will try to engage with his Treasury counterpart, Steven Mnuchin, whom the Chinese see as the most willing to make a deal," said Richard McGregor, senior fellow at the Lowy Institute, a think tank based in Sydney.

The scale of the challenge facing negotiators was highlighted by a widely reported list of demands that the US delegation gave to the Chinese government before the first round of talks. It included cutting the US trade deficit with China by $200 billion by the end of 2020 and halting Chinese subsidies for advanced technology industries.