President Donald Trump said Tuesday that the deal might require ZTE to revamp its board and to pay a fine of $1 billion or more.
The ZTE talks occur after the U.S. and China over the weekend suspended plans to impose tariffs on as much as $200 billion in each other's goods, pulling back from the brink of a trade war. China on Tuesday made a conciliatory gesture by cutting the tariff on imported vehicles to 15 percent from 25 percent, effective July 1.
In the face of congressional criticism, Treasury Secretary Steven Mnuchin on Tuesday denied that the U.S. is offering relief for ZTE in exchange for trade concessions.
"This is not a quid pro quo or anything else," Mnuchin told a Senate Appropriations subcommittee.
The Commerce Department last month blocked China's ZTE from importing American components for seven years, accusing it of misleading U.S. regulators after it last year settled charges of violating sanctions against Iran and North Korea. The ban was a virtual death sentence for ZTE, which relies on U.S. parts.
"The objective was not to put ZTE out of business," Mnuchin said. "The objective was to make sure they abide by our sanctions program."
On Capitol Hill, Republicans and Democrats alike criticized the administration for seeming to go easy on a company that had violated U.S. sanctions.
Citing media accounts about ZTE talks, Republican Sen. Marco Rubio of Florida tweeted: "If this is true, then administration has surrendered to #China and #ZTE. Making changes to their board & a fine won't stop them from spying and stealing from us."
"Putting our national security at risk for minor trade concessions is the definition of short-sighted," Senate Minority Leader Chuck Schumer, D-N.Y., tweeted at Trump. "This the exactly the type of deal you'd have called 'weak' or 'the worst deal ever' before you were @POTUS."
On the eve of talks last week with a Chinese trade envoy, Trump barged into the ZTE case by tweeting that he was working with President Xi Jinping to put ZTE "back in business, fast" and save tens of thousands of Chinese jobs. He later tweeted that the ZTE talks were "part of a larger trade deal" being negotiated with China.
On Tuesday, Trump said a resolution of the ZTE sanctions would also help U.S. companies that supply the Chinese firm: ZTE "can pay a big price without necessarily damaging all these American companies ... you're talking about tremendous amounts of money and jobs to American companies."
Amanda DeBusk, a former Commerce Department official who chairs the international trade practice at the law firm Dechert LLP, said it's not unusual for governments to use sanctions against foreign companies as leverage in trade negotiations. But it's usually done behind closed doors.
"What's different is the way it's all been done in public, on Twitter," she said. "It's hanging out there for everyone to see."
AP Writers Darlene Superville and Zeke Miller contributed to this report.
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