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White House's Larry Kudlow on China's ZTE: 'They're not going to get off scot-free'

  • President Trump this month announced that sanctions against ZTE had cost "too many jobs in China" and pledged to get the firm back in business.
  • White House economic adviser Larry Kudlow says the "remedy" for the Chinese phone maker's behavior could include fines, compliance measures, a new board of directors and a new management team.

President Donald Trump's administration may be considering easing penalties on Chinese phone maker ZTE amid broader trade negotiations, but White House economic adviser Larry Kudlow insisted Monday the company won't get off "scot-free."

"They broke the law on several occasions after being warned," Kudlow said on CNBC's "Squawk on the Street."

Kudlow said the "remedy" for ZTE's behavior could include "significant fines, very severe compliance measures, a new board of directors, a new management team."

"Nobody should assume that there's going to be a penalty-free change here, believe me," Kudlow said. "They're not going to get off scot-free."

The U.S. Commerce Department last month banned American companies from selling to ZTE for seven years after ZTE was caught illegally shipping U.S. goods to Iran and North Korea in violation of U.S. sanctions. But in a stunning reversal, Trump this month announced that the decision had cost "too many jobs in China," and he pledged to get the firm back in business.

Treasury Secretary Steven Mnuchin said that he and Commerce Secretary Wilbur Ross were asked by Trump "look into it," but that Trump didn't dictate any terms. Mnuchin added that the enforcement of the ban wasn't meant to put the company out of business, and that any changes being considered would support U.S. national security.

"Not a surprise President Xi asked President Trump to look into ZTE," Mnuchin told CNBC's "Squawk Box" on Monday, referring to Chinese President Xi Jinping. "It's no different than when President Trump calls up world leaders on behalf of American companies all the time."

In contrast to his advisers, Trump has acknowledged a link between the ZTE dispute and trade talks, most recently by backpedaling sanctions against ZTE.

China reportedly would not continue trade talks unless Washington agreed to ease sanctions on ZTE.

Top White House officials, including Kudlow, continue to insist ZTE is a separate issue. Mnuchin said on Monday that the story had been "misreported."

"As we are all saying — Secretary Ross...Secretary Mnuchin, myself and others — this is primarily an enforcement issue," Kudlow said.

"Even though President Trump wants to help President Xi, in the middle of trade talks, and just as importantly if not more so, in the middle of the Korean Peninsula talks...we can't drop our rule of law," Kudlow added.

ZTE did not immediately respond to CNBC's request for comment.