This week, the United States Department of Commerce announced a restriction is being placed on one of China's biggest telecommunications companies, ZTE Corporation, for "illicitly reexport[ing] controlled items to Iran in violation of U.S. export control laws" and operating "contrary to the national security or foreign policy interests of the United States."
Reuters reported that industry experts have indicated this violation will result in supply chain disruptions for ZTE, since the sanction prohibits American companies and other global manufacturing firms from selling products and components made primarily in the U.S. to it.
"We hope this sends a strong message to ZTE, to China, and to other Chinese telecommunications companies who present serious national security risks not only by evading export controls, but by purposefully compromising supply chain security," California Representative Adam Schiff told the source.
Sanction impacts supplier operations
ZTE is the only smartphone manufacturer in China that has a strong bearing in the American market. And, because its supplier network is so large, the news source indicated, this action is going to significantly impact many companies throughout the world, especially when it comes to handset production.
Reuters also revealed that research conducted by IDC found that ZTE accounts for 7 percent of the smartphone market share in the U.S., surpassed only by Apple Inc., LG Electronics Inc. and Samsung Electronics Co. Some buyers of its handsets include AT&T, Sprint Corp. and T-Mobile US. Other tech giants in America that ZTE has partnerships with include Honeywell International Inc., Intel Corp, IBM and Microsoft.
In an email to Reuters, Microsoft said that the corporation adheres to U.S. regulations and will take action to assess the new restrictions. Furthermore, a representative of the company confirmed it did have a licensing agreement with ZTE, but didn't clarify whether or not Microsoft has supplied the Chinese manufacturer with software or other items.
The Wall Street Journal explained that, because ZTE is such a significant source of electronic components for many U.S. vendors, even if the export restriction doesn't directly hurt the financial stability of American companies, it could affect businesses interested in selling to China. For example, ZTE purchases chips used in mobile devices and computing applications from some of the biggest suppliers based in the U.S., including Qualcomm Inc. and Intel Corp.
Information Technology and Innovation Foundation President Rob Atkinson indicated to the source that the restriction should be applied to technology related to arms and other military applications, rather than the equipment for general telecommunications use. He added that the loss of this revenue could make the U.S. tech market less competitive.
Chinese ministry upset with U.S.
Following the Department of Commerce's announcement, ZTE released a brief statement saying that is has and will continue to comply with the U.S. government and that it is "working expeditiously towards resolution of this issue."
In another article, The Wall Street Journal reported that this event will most likely further fuel the technology-related tension between the U.S. and China. One of ZTE's competitors, Huawei Technologies Co. has been banned from selling telecommunications and networking equipment products in America since 2012. China has grown increasingly frustrated with tech corporations based in the U.S., including IBM and Cisco Systems, for working with other domestic businesses.
"We hope that the U.S. side can stop such erroneous practices so as to avoid further damage to China-U.S. economic cooperation and bilateral relations," Hong Lei, a foreign ministry representative, said at a news briefing earlier this week, according to the source.
Furthermore, the ministry indicated that Beijing is upset with the measures taken by the U.S. and that ZTE helps create opportunities for employment in America.
"This feels very much like we are clearly in the middle of a technology trade war escalation," Beijing Alliance Development Group Consultant Chris DeAngelis told The Wall Street Journal. "ZTE is an important state-influenced company. You're aiming close to the heart."
The source also revealed that ZTE Chief Executive Shi Lirong sent a letter to its approximately 80,000 workers letting them know the business has created a group solely to help them deal with the issue.
Although the Department of Commerce allows U.S. organizations to apply for a selling license to supply ZTE with goods, the agency indicated it will most likely not grant approval on any applications.