As we detailed last week, a group of senators successfully attached an amendment that would effectively kill the Trump administration’s deal with Chinese telecoms firm ZTE to a “must-pass” defense authorization bill. The amendment to kill the deal, which was first unveiled a week ago shortly after Commerce Secretary Wilbur Ross announced the administration had worked out a deal to save ZTE, would reimpose the White House’s original ban on ZTE buying components from US firms (what some have described as a “death sentence” for the company).

Tonight, the US Senate passed the “must-pass” $707.7b defense policy bill for FY19 – that includes the provision that would reimpose penalties on ZTE – creating a standoff with the White House, which had planned to ‘fix’ the provision in negotiations.

The Vote on H.R. 5515 was 85-10, and, as The Wall Street Journal reports, President Trump is now expected to turn his attention to persuading congressional negotiators to strip the ZTE sales ban out of the final version of the defense authorization bill.

The House has already passed its own version of the legislation without the sales ban, and the chamber’s top negotiator has said he aims to reconcile any differences with the Senate by the end of July.

The two chambers must pass identical legislation before Mr. Trump signs a defense measure into law – or uses his veto powers.

Mr. Trump had personally negotiated with Chinese President Xi Jinping to get ZTE back in business by overriding a decision by his own Commerce Department to block sales to the telecom company.

ZTE – which was already down hard after re-opening for trading last week – is now down another 15%, down almost 50% from pre-ban levels…

Despite Commerce Secretary Wilbur Ross’s insistence that the ZTE deal was “quite separate” from China’s trade talks (and North Korea), we suspect it is close to top of mind for China’s President Xi and therefore will rapidly get on Trump’s agenda in the negotiations.