The U.S. and China are closing in on a deal that would give China’s ZTE Corp. a reprieve from potentially crippling U.S. sanctions in exchange for Beijing removing tariffs on billions of dollars of U.S. agricultural products, said people in both countries briefed on the deal.
The negotiations would also ease roadblocks in China faced by a U.S. semiconductor company Qualcomm Inc., whose proposed acquisition of NXP Semiconductors NV of the Netherlands has been held up by Beijing. China’s Commerce Ministry has pledged to immediately restart its review of the acquisition, a person close to the agency said. The ministry has held up a number of multibillion-dollar cross-border deals being pursued by U.S. companies over the past few months.
ZTE is a Shenzen-based telecommunication-equipment producer that has been hamstrung by a U.S. ban on component sales to the firm.
A deal isn’t completed and could fall apart as discussions continue, particularly since the U.S. side is sharply divided over how to deal with China. On Sunday, President Donald Trump said in a tweet that he was working with Chinese President Xi Jinping to get ZTE “a way to get back into business, fast. Too many jobs in China lost.” He said the Commerce Department has been instructed to “get it done!”
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The tweet took many in Mr. Trump’s inner circle by surprise, said people involved in the discussions, and wasn’t preceded by interagency discussions on the policy. Treasury Secretary Steven Mnuchin, who has been leading discussions recently with Chinese officials in Washington, has been the key player in the ZTE deal discussions, said people involved in U.S. talks with China.
Under the deal being discussed, the U.S. would relax last month’s order banning American companies from selling components to ZTE, which has long been viewed as a Chinese national champion for its effort to take a global lead in establishing 5G mobile internet networks. That Commerce Department ruling, based on allegations that ZTE conducted illicit sales to North Korea and Iran, would cripple not only the company itself but also other state-controlled Chinese firms including China’s three large telecom carriers, Beijing officials have said.
In return for the potential relief on ZTE, the people say, China would agree to hold back tariffs on a variety of U.S. agricultural products it announced in early April as retaliation for U.S. tariffs on Chinese steel and aluminum exports. The U.S. products targeted include ginseng and pork.
China would also ease some nontariff restrictions on American farm products as part of the potential pact, according to the people. For instance, since late last year, China has tightened quality testing for U.S. soybeans, resulting in the crop getting held up at Chinese ports.
The Trump administration worries that a backlash among U.S. farmers to tariffs could endanger Republican efforts to keep control of the House and Senate in midterm elections.
A deal would be a kind of confidence building exercise as China’s chief economic envoy, Liu He, is expected to arrive in Washington on Tuesday for talks through the end of the week. The two sides hope to put together a preliminary deal resolving their trade fights, which have roiled world markets.
Write to Lingling Wei at lingling.wei@wsj.com and Bob Davis at bob.davis@wsj.com
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