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China's ZTE cellphones a security risk to US?

16 May 2018

The message from President Trump comes after ZTE faced several other obstacles, including having the heads of the Federal Bureau of Investigation and Central Intelligence Agency warning against buying phones from either ZTE or Huawei.

Shenzhen-based ZTE had to halt most of its business operations and faced serious challenges of survival after the US Commerce Department chose to ban US companies from selling components to the Chinese telecommunications equipment maker for seven years. The U.S. Department of Commerce made the move after the company failed to punish employees who reportedly violated American trade controls against Iran and North Korea.

ZTE announced last week the USA sanctions would force it to curtail major operations.

Trump has threatened $150 billion in tariffs on imports of Chinese goods, and China has threatened to retaliate against USA exports, including soybeans and aircraft.

Trump on Monday had defended his decision to revisit penalties on ZTE for flouting USA sanctions on trade with Iran, in part by saying it was reflective of the larger trade deal the United States is negotiating with China. Mark Dubowitz, the chief executive for the Foundation for Defense of Democracies who advocated for continuing negotiations with Europe to strengthen the nuclear deal, told me Tuesday that Trump's approach was unusual, but could also produce effective compromise.

ZTE is a state-linked telecommunications company that sells its equipment to 140 countries.

Almost three dozen Senate Democrats on Tuesday called on President TrumpDonald John TrumpAvenatti defends right to release Cohen's financial info Pruitt's 24/7 security requested over fears of Trump policy backlash Senate GOP anger over McCain insult grows MORE to put and national security ahead of China.

The companies are controlled by the Communist Party of China and could be used for operations to compromise USA communications infrastructures, the report said.

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Chinese observers were despondent to find that one of their country's top companies, which sells network equipment and cell phones all over the world, is "hollow at its core" and reliant on the US for its microchips.

A security firm, Kryptowire, disclosed in 2016 that Chinese phones are loaded with software that sends a user's data to Beijing.

MORE: What Are Good Alternatives to ZTE's Phones?

Republican Representative Mac Thornberry, chairman of the House Armed Services Committee, said at a Bloomberg event on Tuesday he did not expect lawmakers would seek to remove a ban on ZTE technology from a must-pass annual defense policy bill making its way through Congress. This could include penalties on USA companies in Europe to make up for future fines levied on European companies that continue business with Iran after a six-month grace period for the sanctions expires. There was notable volatility in the stocks from China post announcement by Trump.

ZTE is known to rely on importing chips from U.S. firms such as Qualcomm and Intel for up to a third of its components.

Ross said that, while he expected Chinese officials would bring up the issue this week, "our position has been that that's an enforcement action separate from trade". Indeed, he is threatening to punish any country that violates United States sanctions on Iran - even our closest allies.

ZTE should not be operating in the United States and should not have easy access to American technology, Rubio said.

The Chinese authorities have also been trying to fend off the impression that they bowed to pressure from Western countries to improve market access.

China's ZTE cellphones a security risk to US?