Chinese cell phone manufacturer ZTE

As you have probably heard by now, the US Department of Commerce has announced export restrictions that will eliminate ZTE’s access to U.S. technology for use in its communications equipment. The restrictions are the result of accusations that ZTE has sold communications equipment including U.S.-sourced technology that is banned from export to them.

In a statement from ZTE, they say that they are working with the Department of Commerce to resolve the issues.

The US Department of Commerce decision may turn out to be devastating to ZTE who have designed in many US components into their products.

Not only will ZTE be impacted. Many US cell phone consumers have come to like enjoy the low-cost cell phone alternative that ZTE offers. And with a major low-cost producer out of the picture, the logical conclusion is that the other suppliers will be slower to lower their prices.

Beyond US consumers, US component suppliers are impacted. Currently, they are scrambling to assess the impact of the ban to their own bottom lines. Oclaro has come out in a press release and admitted that the US Department of Commerce ruling could affect 10% of their sales in the third quarter of 2016. Other component vendors seem to be waiting to see how this will all play out prior to making similar announcements to Oclaro.

I do not question the fact that Iran has not played by the world’s rules of acceptable behaviour. The US Department of Commerce has every right – and obligation – to enforce US export restrictions to Iran. They clearly felt it was necessary to punish ZTE. The question that I have is how this may impact US industrial competitiveness in the long term? Chinese electronic equipment manufacturers including Huawei and Lenovo currently buy a lot of US-designed and manufactured components. Huawei and Lenovo, fearing US export restrictions, may try to design around US components. Such a decision would definitely affect the competitiveness of their products. On the other hand, lower sales by US components suppliers will affect their competiveness as well.

Clearly, the export restrictions on ZTE are a double-edged sword.