LONDON/NEW YORK/HONG KONG (Reuters) - The United States has banned American firms from selling parts to China’s ZTE Corp for seven years, a potentially devastating move for the telecoms equipment maker and exacerbating tensions between the world’s two largest economies.
The action, first reported by Reuters, comes at a time when the two countries have threatened each other with tens of billions of dollars in tariffs in recent weeks, fanning worries of a full blown trade war that threatens global supply chains as well as business investment plans.
The U.S. Commerce Department imposed the ban after ZTE violated an agreement on punishing employees that was reached after it was caught illegally shipping U.S. goods to Iran.
China responded swiftly, warning it is prepared to take action to protect the interests of Chinese firms and saying it hopes the United States can deal with the issue in accordance with the law.
The U.S. action could be catastrophic for ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.
“If the issue cannot be solved smoothly and immediately, we think that ZTE will face tremendous disaster and would be forced to scale back on its smartphone business, not only in the U.S., but also in other markets,” said Strategy Analytics analyst Woody Oh.
ZTE, whose Hong Kong and Shenzhen shares were suspended from trade on Tuesday, said in a statement it was assessing the implications of the U.S. decision and was communicating with “relevant parties”.
The company has set up a crisis management group in response to the ban, said a ZTE source, declining to be identified as the information was confidential.
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