The United States has banned the sale of American technology related to software or parts to the Chinese ZTE Company for a period of 7 years. This has resulted in escalating tension between the two countries and can be very destructive for ZTE.
Trade War Begins
Reuters reported the news that China and the US seem to be entering a full-fledged trade war with several billion dollars at stake. This will have an effect globally on several supply chains and businesses all over the world.
Ban on ZTE
The commerce department in the US has banned the sale of American technology, such as software and other parts and components to the ZTE Company for the next 7 years. The reason for the ban was that ZTE has been selling US goods to Iran as well as North Korea illegally.
Violation of Agreement
ZTE was aware of the illegal activity and had encouraged the officials responsible for the sale of the US goods by rewarding the persons responsible. It had also kept the sale hidden from US authorities. There was an agreement stating that ZTE would punish employees who shipped US goods illegally to these countries and ZTE had violated this agreement as it continued paying the full bonus to its employees who had engaged in the illegal sale.
According to the agreement, ZTE would have to dismiss its senior officials who had engaged in the illegal practice. It was also bound to give warning to 35 other employees. This was to be done either by cutting their bonus amount or issuing a reprimand to them. Wilbur Ross, the Commerce Secretary in the US said that instead of doing this, ZTE had actually rewarded them and this was not acceptable.
Even earlier, the US commerce department had imposed a fine on ZTE for shipping such equipment to the above-mentioned countries of Iran and North Korea. ZTE had to pay $890 million as penalty along with another $300 million fine.
ZTE Faces Disaster
It is possible that ZTE will be facing a serious problem if the problem with the US commerce department is not solved soon. ZTE will have to reduce its business in the United States markets or even stop altogether and also in other countries all over the world, according to Woody Oh, the analyst for Strategy Analytics.
ZTE has stated that it was still considering the US ban and its implications for its operations in the country. It has created a team for managing the issue of the US ban, according to one ZTE source that wished to remain confidential.
According to Reuters, even Google might not be able to license Android operating system to the ZTE Company, due to the current ban. Even the mobile services of Google, such as the App Store, Google Play, might be affected due to the ban, according to Radio Free Mobile analyst, Richard Windsor. ZTE will lose all Android business. This will hit the mobile phone quite badly as it is nearly impossible to sell the ZTE phone without the Google Play Store installed in it.