US ban on sales to ZTE opens fresh front in trade war

AMERICAN COMPANIES CAUGHT IN CROSSFIRE AS SHARES SLIDE

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 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 US Commerce Department imposed the ban after ZTE violated an agreement on punishing employees that was reached after it was caught illegally shipping US 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 US action could be catastrophic for ZTE since American companies are estimated to provide 25 per cent to 30 per cent 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 US, but also in other markets,” said Strategy Analytics analyst Woody Oh.

ZTE, whose Hong Kong and Shenzhen shares were suspended from trade yesterday, said in a statement it was assessing the implications of the US decision and was communicating with “relevant parties”.

Crisis management group

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.

Worth some $20 billion (Dh73.64 billion) as of Monday’s close, ZTE is China’s second-largest telecom equipment maker after Huawei Technologies Co Ltd and the fourth biggest seller of smartphones in the US. In 2017, it derived 59 per cent of revenue from its network business and 32 per cent from its consumer business.

The European Union on Monday followed China in complaining to the World Trade Organisation (WTO) over US tariffs on steel and aluminium imports.

“Having a substantial interest as an exporter in this case, the European Union requests consultations with the United States,” the EU said in a statement published on the world trade body’s website.

US President Donald Trump sparked fears of a trade war in March when he decided to impose steep tariffs on steel and aluminium imports, primarily to target China, but also EU countries.

Brussels said in the document the aim of the discussions would be to “exchange views and seek clarification regarding the proposed measures” and to reach “an understanding on ways to achieve” protection, as set out in the WTO’s Agreement on Safeguards.

The EU said it wanted to hold the consultations “as soon as possible”.

A European Commission source told AFP: “The discussions between the EU and the US are currently ongoing. Contacts continue at several levels, notably on the issue of global overcapacity in the steel and aluminium sectors.

“In these discussions, the European Commission is insisting on getting a full and unconditional exemption from the announced steel and aluminium tariffs.”

On April 5 China also filed a complaint with the WTO, but Beijing went through its Dispute Settlement Body.