U.S. and China reportedly working on a deal to save ZTE

The United States and China are said to be working on a deal that would keep ZTE from going out of business. According to the Wall Street Journal, the two countries have agreed on a “broad outline” of a deal to settle a trade dispute sparked when the Commerce Department banned American companies from selling to ZTE for seven years after it violated sanctions against Iran and North Korea.

If the deal goes through, the U.S. would lift the ban. In return, ZTE would have to make major leadership changes and also potentially face heavy fines. The deal would enable its business to survive, however, since many of its most important suppliers, including Qualcomm, are American and the ban has the potential to cause irreversible damage to its business. ZTE is also the fourth-largest vendor of mobile phones in the U.S.

As part of the deal, China reportedly offered to remove tariffs that impact billions of dollars in U.S. farm products, though one of the WSJ’s sources said “the White House was meticulous in affirming that the case is a law enforcement matter and not a bargaining chip in negotiations.”

Talk of the deal isn’t a complete surprise. Earlier this month, President Donald Trump tweeted 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.” He was met with backlash from officials and lawmakers concerned that the administration is softening its stance in trade negotiations with China. The Chinese government had reportedly demanded that the U.S. roll back sanctions against ZTE as a prerequisite for continuing trade talks, which stalled last month (though the countries agreed yesterday to continue).

White House economic adviser Larry Kudlow told CNBC yesterday that ZTE is “not going to get off scot-free” and that it still faces fines, “very severe compliance measures, a new board of directors, a new management team.”