A new US export restriction against China’s ZTE Corp for alleged Iran sanctions will most likely disrupt the telecom manufacturer’s sprawling global supply chain, which sanctions experts say could create major parts shortages.  Under the measure announced by the Commerce Department two days ago, American manufacturers will be banned from selling components to ZTE, which is a major global supplier of telecom-networking equipment.  Foreign manufacturers will also be prohibited from selling products with a significant amount of US-made parts to the company.

The Commerce Department said that ZTE planned to use a series of shell companies to “illicitly reexport” controlled items to Iran, in direct violation of US export control laws and contrary to America’s national security and foreign ZTE logopolicy interests.  While ZTE suppliers can apply for an export license to ship any US-made equipment or parts, although the Commerce Department said that such license applications will generally be denied.  Yet this export restriction is expected to have a major ripple effect due to ZTE handsets’ significance to many companies both in the US and abroad.  For example, a chipmaker in Taiwan that uses American-made components to make processors for ZTE handsets would probably have to cut off those sales.

ZTE, which has annual sales of more than $15 billion and is the only Chinese smartphone maker with a significant presence in the US (a 7 percent market share), is among the largest companies the Commerce Department has hit with a near-total export ban.  In 2014, the department restricted exports to Russian energy companies, but those only stopped American companies from supplying certain types of oil-production projects like Arctic offshore and deepwater drilling.  Although ZTE isn’t being prohibited from selling handsets in the US, experts say the restriction could disrupt production if ZTE sources American-made parts to manufacture its headsets.

The US has banned the sale of American-made technology products to Iran as part of its sanctions for a while now, even as China maintains close diplomatic, economic, trade and energy ties with Tehran.  Last year, the US and major world powers reached a deal with Iran to loosen economic sanctions if Tehran would curb its nuclear program.

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