Trump's Ban Force China's ZTE To Shut Almost All Of Its Operations

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“There is nothing ZTE can do now. Its manufacturing and sales are paralyzed, but R&D is still going on.”

 

The second-largest smartphone maker in China was forced to shut down its major operations, thanks to the Trump administration.

ZTE Corporation, a Chinese multinational telecommunications equipment company, that sells millions of smartphones in the United States, halted its operations after the U.S. Department of Commerce banned American companies from selling components to the Chinese company.

“The major operating activities of the company have ceased. The company and related parties are actively communicating with the relevant U.S. government departments in order to facilitate the modification or reversal of the denial order by the U.S. government and forge a positive outcome in the development of the matters,” ZTE said.

The decision of the ban came after the company was accused of violating U.S. sanctions by shipping U.S. goods and technology to Iran. Last year, ZTE pleaded guilty to the accusations in a Texas federal court. The company also paid a fine of $890 million.

Under the agreement, the Chinese company also promised it would let go four of its senior employees and discipline the rest of its staff by reprimanding them or giving them lower than promised bonuses.

The issue settled there but last month the Trump administration accused ZTE of lying because, as promised, the company didn’t punish its employees who violated the sanctions and majority of the employees received full bonuses.

However, the sanctions could be devastating for company.

ZTE heavily relies on U.S.-made components and American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment. These components include smartphones and gear to build telecommunications networks.

“This will be devastating to the company, given their reliance on U.S. products and software. It’s certainly going to make it very difficult for them to produce and will have a potentially significant short- and long-term negative impact on the company,” said Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE.

Huang Leping, an analyst with China International Capital Corporation, said, “There is nothing ZTE can do now. Its manufacturing and sales are paralyzed, but R&D is still going on.”

The only hope for ZTE now would be an intervention from the Chinese government. However, that also doesn’t seem likely given the current tensions between the two countries over trade.

In April 2018, President Donald Trump announced tariffs on about $50 billion worth of imported goods from China. In retaliation, President Xi Jinping also ordered $50 billion worth of tariffs on American imports. Trump later directed U.S. trade officials to identify tariffs on $100 billion more Chinese imports.

 

Spotlight, Banner: Reuters, Paul Hanna

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