Trump's trade fight with China just claimed its first big victim

Andrew Harnik/AP Images

US President Donald Trump and Chinese President Xi Jinping

• President Donald Trump's administration banned sales of US parts to Chinese phone maker ZTE.
• ZTE is the second-largest telecom equipment maker in China and generated $17 billion in revenue in 2017.
• ZTE announced Wednesday that "the major operating activities of the company have ceased."
• The ZTE shutdown highlights the global ramifications of Trump's trade battle with China.

President Donald Trump's crackdown on trade claimed a massive victim this week, with Chinese tech giant ZTE shutting down most of its operations in recent days.

The Commerce Department recently barred ZTE from using US-made parts, effectively crippling its operations and leading to a shutdown of its factories. In a statement Wednesday, ZTE said "the major operating activities of the company have ceased."

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The firm is the second-largest telecom equipment firm in China and pulled in almost $17 billion in revenue last year.

The US sanctions were the result of an investigation into alleged sales to North Korea and Iran that violated existing US sanctions against those countries.

According to the New York Times, the company's workers are now only participating in occasional training sessions, and ZTE's stock remains frozen. The company tried to quell concerns about its future in the statement.

"As of now, the company maintains sufficient cash and strictly adheres to its commercial obligations subject to compliance with laws and regulations," ZTE said.

But replacing US-made parts for its phones is a tall task. For instance, the company uses Google's Android software in many of its phones and get parts from companies like Qualcomm and Intel.

ZTE said it is working with the Trump administration to reverse the sanctions and "forge a positive outcome in the development of the matters."

ZTE's shutdown is perhaps the most severe sanction facing a single company in the escalating trade tension between the US and China. In March, Trump imposed tariffs on steel and aluminum coming into the US. Later, he slapped tariffs on $50 billion worth of Chinese goods.

China announced retaliatory tariffs. More recently, reports have suggested that the Trump administration is considering various ways to limit Chinese firms' ability to invest in the US.

The Trump administration also barred ZTE and fellow telecom equipment maker Huawei from selling goods on US military bases and is considering a broader crackdown on the pair's sales into the US.

During a meeting with seven high-level members of the Trump administration last week in Beijing, Chinese officials reportedly brought up the ZTE crackdown and urged the US to ease up.

Along with the simmering trade fight between Trump and China, the ZTE decision represents an example of the global consequences of the fraying ties.

For instance, MTN, a South Africa-based wireless carrier with 220 million customers throughout Africa and the Middle East, said the possibility ZTE would collapse forced the carrier to develop contingency plans.