President Trump's stunning change in stance toward a Chinese telecom-equipment maker that his administration recently sanctioned drew widespread rebuke Monday, even as it seemed to increase the likelihood that the U.S. and China could soon pull back from the brink of a trade war.
China's top economic official, Vice Premier Liu He, is expected to arrive in Washington on Tuesday for several days of meetings with senior Trump administration officials. And Trump's tweet Sunday that he and Chinese President Xi Jinping are working together to help save ZTE could be a sign that Trump is looking for a potential deal to avert massive tariffs threatened by both sides.
The Trump administration in April banned U.S. companies from selling parts to ZTE for violating a previous settlement over illegal shipments to Iran, penalties so crippling that they were endangering the big Shenzhen company's survival. Critics of China's mercantilist policies had applauded the sanctions, and saw them as an indication of the seriousness with which the administration was pursuing change in Beijing.
Trump's about-face on ZTE apparently surprised his own officials, and it was all the more remarkable because the president, advocate of the "America first" policy, tweeted as a reason that "too many jobs in China [would be] lost."
Scott Paul, president of the Alliance for American Manufacturing, called Trump's tweet on ZTE "indefensible," given that the company had been found breaking U.S. laws and was considered by many to be a security threat to the U.S.
Other analysts warned that the president would pay a heavy political price for inexplicably backing away from his get-tough-on-China policy.
"Rhetorically this is a big change," said Derek Scissors, a scholar at the American Enterprise Institute who specializes in China. In terms of actions, he said, Trump's highest-impact strike against China thus far was in fact the ZTE penalty, which now looks to be coming off.
"I don't think right now we can believe the president is willing to sustain any cost to take on the Chinese," he said.
Michael Wessel, a longtime member of the U.S.-China Economic and Security Review Commission, tweeted that ZTE had already been told how to stay in business. "Abide by U.S. laws. They've broken the rules twice. Bad sign for upcoming trade talks and potential willingness of administration to settle for small steps."
Trump, apparently reacting to the criticisms, including from lawmakers on both sides of the aisle, on Monday suggested that the softening toward ZTE was motivated by a desire to avoid harming American interests. "ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi."
For American retailers and other businesses worried about tariffs and disruptions to trade and their supply chains, Trump's pledge to help ZTE and the continuing talks between the two sides were seen as a favorable development.
"It gives us cause for optimism," said David French, senior vice president of government relations at the National Retail Federation, which along with dozens of other business interests are appearing at a hearing starting Tuesday on the Trump administration's proposed tariffs against China.
Chinese officials had responded to the penalties against ZTE by holding up San Diego-based Qualcomm's application to acquire NXP Semiconductors. But offering its own step to ease tensions, Beijing said it would restart the review of the purchase request.
Scissors and other analysts said Trump may have backed away because of growing pressure from U.S. farmers, who already were finding more obstacles exporting into the big Chinese market.
There was also speculation that Trump's step may have been in exchange for Beijing's support for the president as he gears up to meet North Korean leader Kim Jong Un on June 12 in Singapore.
China has long been Pyongyang's biggest benefactor, and its recent tightening of trade with North Korea, at Trump's behest, is thought to have played a part in Kim's agreement to meet Trump to discuss a denuclearization of the Korean peninsula. Trump has repeatedly said that he would cut China slack on trade if it helped him on North Korea.
At the same time, since the start of the year the Trump administration has moved toward taking hard-line actions to shrink the large U.S. trade deficit and blunt Beijing's policies that are harming U.S. innovation and intellectual property rights. Trump has threatened stiff tariffs on $150 billion of Chinese goods, and his administration is also preparing restrictions on Chinese investments. Beijing has vowed to retaliate in commensurate measure, and was particularly troubled by the sanctions against ZTE.
Trump's change in tune on ZTE also marked a significant shift from just two weeks earlier when his high-level delegation, led by Treasury Secretary Steven T. Mnuchin, presented a list of unusually tough demands to Liu and others during meetings in Beijing. They made little progress as both sides appeared to talk past each other.
"Easing up on ZTE probably makes it more likely that there will be an outcome that avoids tariffs," said Nicholas Lardy, a China economy expert at the Peterson Institute for International Economics, although he added that "there are now so many moving pieces that it is hard to be confident about anything, at least from the outside."
Whether planned or not, Trump has kept trading partners and others off-balance, with tweets and sudden policy pronouncements. And the ZTE tweet on Sunday may have topped them all as it left most everyone scratching their heads about the administration's objectives on China.
"What this is, is just another example of a very undisciplined policy process, so that every action isn't necessarily well thought out," said David M. Lampton, director of China studies at the Johns Hopkins School of Advanced International Studies in Washington. Rather, he said, "it's a spontaneous kind of combustion in the mind of one admittedly important actor, namely the president."
He and other experts expect that the Chinese delegation in Washington this week will make some concessions, including those previously offered, such as a cut in auto import tariffs, opening up markets in services and other steps to reduce the U.S. trade deficit. But no one is expecting Beijing to abandon its industrial policies such as subsidies and market protections for key industries that some in the Trump administration want to tear down.
"The bottom line," Lampton said, "what is the Trump administration prepared to accept? Under what circumstances will it declare victory?"