Before Huawei was banned from its U.S. supply chain last May, fellow Chinese manufacturer ZTE was blocked from its state-side supply chain in 2018. While Huawei was able to thrive despite its placement on the U.S. Commerce Department’s entity list, ZTE almost went out of business. Surprisingly, a tweet from President Donald Trump set the wheels in motion for a settlement that ultimately saved the company.
But ZTE is once again in the Trump administration’s crosshairs. The smartphone and networking equipment manufacturer is being investigated for allegedly bribing foreign officials to help its global operations. The Justice Department has not revealed any information about the investigation. In 2016, the Commerce Department fined ZTE $1.19 billion for selling goods and services to Iran and North Korea despite U.S. trade sanctions against both countries.
As part of the punishment, ZTE was banned from its U.S. supply chain for seven years; the Commerce Department suspended the ban as long as the manufacturer was following all of the penalties placed on it by the U.S. government. But once the Trump administration realized that ZTE was paying bonuses to some employees in violation of that agreement, the supply chain ban was initiated in April 2018 running through March 2025.
Unlike Huawei, which rode a wave of Chinese patriotism and still managed to deliver approximately 240 million handsets last year (second behind Samsung and ahead of Apple), ZTE does not design its own chips and did not prepare for a ban as Huawei had done by stockpiling chips. ZTE, which was the fourth-largest smartphone manufacturer in the U.S. prior to the 2018 ban, was running into trouble. But out of nowhere, President Trump disseminated a tweet expressing concern for the jobs being lost in China because of the supply chain ban. Trump wrote that he had instructed the Commerce Department to reach a deal with ZTE. Weeks later, a deal was made. ZTE paid the U.S. $1 billion and put $400 million into an escrow account in case it committed any illegal acts in the future (like the new charges). The Chinese manufacturer also agreed to overhaul its Board of Directors and replace its executive team. A compliance team from the U.S. was placed inside the company.
ZTE was never able to regain its position as a top smartphone vendor in the states. Motorola took over its spot as the fourth most popular brand in the U.S. and that continues. The U.S. still considers ZTE to be a national security threat. Back in November, the FCC voted to block the Universal Service Fund (USF) from purchasing networking equipment from ZTE and Huawei. The $8.5 billion fund is managed by the regulatory agency and is funded through a fee tacked on to consumers’ wireless bills. The USF is charged with helping rural carriers provide internet service to rural Americans. Many of these operators used Huawei and ZTE gear for their 3G and 4G networks.
The FCC and the U.S. government want these rural operators to remove any Huawei and ZTE equipment that is embedded in their networks. The FCC has already estimated that this will cost nearly $2 billion to accomplish over a two-year period. Congress has approved a resolution offering rural carriers $1 billion to remove this gear from their networks. Both Huawei and ZTE are considered national security threats because of their ties to the communist Chinese government. U.S. lawmakers are concerned that the two companies place backdoors in their equipment that gather intelligence and send it to Beijing. ZTE and Huawei have repeatedly denied these allegations.
