With movement on ZTE and Qualcomm, U.S.-China trade war may be cooling

ZTE is the fourth-largest smartphone vendor in the United States, according to Counterpoint. (Counterpoint)

The brewing trade war between the United States and China may have taken a step back as President Trump signaled a willingness to work with Chinese vendor ZTE. China’s government also reportedly restarted a review of Qualcomm’s attempt to purchase NXP.

Although little real, tangible progress appears to have been made on either topic, and it’s unclear how the situation might ultimately move forward. In the wider context, the actions may serve to reduce the looming threat of a broader and more aggressive trade battle between the United States and China.

Wall Street's worries about a trade war between China and the United States were kicked into overdrive in March when President Trump issued a presidential order barring Broadcom from purchasing Qualcomm, largely due to fears of Chinese espionage and the possibility that China would gain a lead over the United States in the development of 5G network technology.

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Shortly after that action, the U.S. Commerce Department blocked ZTE from exporting products from the United States due to what the agency said was ZTE’s false claim that it reprimanded employees involved in illegally shipping telecom equipment to Iran and North Korea. The move essentially prevented U.S. companies from selling components to ZTE.

The Commerce Department expressly said its action against ZTE is “is unrelated to any ongoing trade-related actions.” But the move nevertheless led China’s ZTE to largely shut down much of its manufacturing operations—the company is the fourth largest supplier of smartphones in the United States, according to Counterpoint.

Indeed, as the Wall Street Journal noted, U.S. ZTE smartphone users have been unable to update their ZTE-made Android smartphones during the past month because Google—the company behind the Android operating system—is forbidden from supplying software to ZTE because of the Commerce Department’s ban.

Meanwhile, potentially in response to U.S. actions, China has withheld approval of Qualcomm’s purchase of NXP—the Chinese government is the only one that still hasn’t signed off on the deal. And Qualcomm has pegged much of its growth hopes on acquiring automotive-focused NXP to boost its chips sales beyond the cooling smartphone market.

But now, things appear to be shifting.

First, Trump tweeted yesterday a willingness to revisit the actions against ZTE. 

And just hours later, Bloomberg reported that the Chinese government restarted its review of Qualcomm’s application to acquire NXP.

Of course, the political issues around the actions continue to swirl. For example, Sen. Marco Rubio, R-Fla.,—often a Trump ally—tweeted this morning in reaction to the president's message.

Article updated May 14 to clarify U.S. government action against ZTE.