Chinese Tech Company Blocked From Buying American Components
SHANGHAI — China’s second-largest maker of telecommunications equipment will not be able to use components made in the United States after the Commerce Department said it failed to punish employees who violated American sanctions against Iran and North Korea.
The ban announced Monday, which effectively locks the company, ZTE Corporation, out of American technology for seven years, is a blow to one of China’s few truly international technology suppliers.
ZTE’s products for the infrastructure of telecommunications networks, as well as its smartphones, use an array of American parts, like microprocessors from the chip maker Qualcomm, glass made by Corning and sound technology from San Francisco-based Dolby.
In a call with reporters on Monday, a senior Commerce Department official said the action was not connected to a broader intellectual property investigation into China.
But the tough restrictions on ZTE may be perceived as a new salvo in a deepening economic conflict between the United States and China as the Trump administration and the Chinese government trade threats of increased tariffs on everything from washing machines to soy beans. The Trump administration’s move to counter what it terms unfair trade practices by China has prompted threats of hundreds of billions of dollars in tariffs on products that travel between the two countries.
That trade clash now centers heavily on cutting-edge technology. The Trump administration accuses China of using coercion and illicit means to obtain American technology. In particular, it has criticized an industrial plan known as Made in China 2025 that seeks to make China a world leader in industries like robotics, electric cars and medical devices.
In a bid to stop China from dominating these industries, the White House has proposed limiting American exports of semiconductors and advanced machinery to the country. That could happen through new investment restrictions, which are slated to be announced in the coming months.
While China has long been viewed as the lower-cost producer for technology companies in the United States, it has in recent years gained considerable ground in areas like artificial intelligence. Last year, China unveiled a plan to become the world leader in artificial intelligence and create an industry worth $150 billion to its economy by 2030.
In a Twitter post Monday morning, President Trump also took aim at China, accusing the country of devaluing its currency.
The president’s criticism contradicted a report released just three days earlier by the Treasury Department that scolded China for its lack of progress in reducing the bilateral trade deficit with the United States, but did not find that it was improperly devaluing its currency.
China, the Treasury report said, has allowed its currency to appreciate only gradually, and “the distortion in the global trading system resulting from China’s currency policy over this period imposed significant and long-lasting hardship on American workers and companies.”
ZTE representatives could not be reached for comment.
ZTE’s troubles with the American government predate recent tensions. Last year, the Chinese company agreed to pay $1.19 billion in fines in a settlement that followed a multiyear investigation into claims that the company sold electronics to Iran and North Korea, a violation of economic sanctions imposed by the United States against the countries.
Before the settlement, the Commerce Department had provided two internal ZTE documents to bolster its case.
One, from 2011 and signed by several senior ZTE executives, detailed how the company had “ongoing projects in all five major embargoed countries — Iran, Sudan, North Korea, Syria and Cuba.” Another document, in a complex flow chart, laid out a method for circumventing United States export controls.
The 2017 settlement, which did not block ZTE from buying technology made in the United States, appeared to be a reprieve for the Chinese tech company.
But the Commerce Department said Monday that ZTE had violated the terms of the earlier agreement by making false statements to the United States government. ZTE did not take a number of actions that it said it had: the company did not reprimand employees involved in the banned sales and did not cancel their bonuses.
“ZTE misled the Department of Commerce,” Wilbur Ross, the commerce secretary, said in a statement. “Insead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”
The department said it would reinstate the limits on the company that the 2017 settlement had set aside.
Without access to key components from companies in the United States, ZTE’s smartphones will likely have to be redesigned. Even if new suppliers can be found, the transition will represent a significant disruption to production of the company’s phones.
The ban also comes at a bad time for ZTE. Revenue from the expansion of Chinese 4G cellular networks has slowed, and its smartphone business faces major competition from new Chinese handset makers, as well as its much larger Chinese rival, Huawei.
Huawei also faces an investigation into whether it broke sanctions on Cuba, Iran, Sudan and Syria, The New York Times has reported. Huawei has long been suspected of committing espionage for China. In January, AT&T abruptly pulled out of a deal to carry Huawei’s top-of-the-line smartphone, appearing to bend to pressure from Washington over security concerns.
With the United States increasingly focused on barring China from accessing its high-tech products through tariffs and investment restrictions, the new punishment for the Chinese company could be viewed as an escalation.
In response to the initial settlement, ZTE said it had strengthened its compliance policies and changed its top management.
“ZTE acknowledges the mistakes it made, takes responsibility for them and remains committed to positive change in the company,” said Zhao Xianming, chairman and chief executive of ZTE, in a statement last year.
Ana Swanson reported from Washington.