United States and China are still 'very far apart' on trade: USA ambassador

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ZTE reached a settlement in March 2017 for violating US export laws and paid penalties totaling $1.19 billion.

In 2012, ZTE was caught illegally shipping hardware and software from the USA to Iran and North Korea - a violation of sanctions and an offence that was settled past year.

The company shut its main operations after the Commerce Department last month banned USA companies from selling components to ZTE for seven years for violating the terms of a settlement deal for illegally shipping goods made with US parts to Iran and North Korea. Last year, it had $17 billion in sales and 75,000 employees.

USA officials are now discussing a package of changes that would relax penalties on ZTE in exchange for China easing tariffs on US agricultural products, though talks remain very fluid.

Trump on Monday had defended his decision to revisit penalties on ZTE for flouting USA sanctions on trade with Iran, in part by saying it was reflective of the larger trade deal the United States is negotiating with China.

On Sunday, Trump posted an unusual tweet stating that "President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast". "Too many jobs in China lost".

"He didn't get up one day and go, 'I think I'll change my mind on ZTE.' I think it's part of a larger issue, and part of a larger set of negotiations", Kennedy told reporters.

"The Chinese have suggested that ZTE was a show-stopper - if you kill this company, we're not going to be able to cooperate with you on anything", says Scott Kennedy, an expert on China's political economy at the Center for Strategic and International Studies in Washington, D.C. A high-powered US delegation met for a second day of talks with Chinese officials on defusing tensions that are propelling the world's largest two economies toward a trade war.

US companies are estimated to provide 25 percent to 30 percent of components used in ZTE's equipment, which includes smartphones and gear to build telecommunications networks. USA companies that export to China have had goods held up in China's ports.

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The Pentagon recently banned Chinese telecommunications products from being used by the military over concerns about Chinese espionage related to the Chinese-made equipment. ZTE was not discussed, several senators said.

"There are plenty of routes that the Commerce Department can take to lift the Denial Order, so this could have a happy ending for ZTE and its USA suppliers", said Greengart.

A security firm, Kryptowire, disclosed in 2016 that Chinese phones are loaded with software that sends a user's data to Beijing.

MORE: What Are Good Alternatives to ZTE's Phones? Evanina said USA intelligence agencies are on record as assessing that Chinese telecommunication firms are used as a vehicle by the Chinese government to conduct espionage.

ZTE's situation convinced many Chinese that rather than being dependent on foreign suppliers, the country must manufacture key technology products itself.

"I think the issue here is how harsh the remedies, how harsh the enforcement", said Kudlow.

"The US Congress Dept opened itself up to an appeal so there was always hope that a deal could be worked out", said Avi Greengart, research director of consumer platforms and devices at GlobalData.

The trade mission was quickly followed by sanctions on the Chinese telecom company ZTE that amounted to a financial death penalty.