
Chinese tech giant ZTE ceases operations after ban on using U.S. components - ehead
https://www.nytimes.com/2018/05/09/technology/zte-china-us-trade-war.html
======
frandroid
Considering how much of their sales were in the U.S., and knowing the kind of
threats the U.S. government had already made to Huawei, it was pretty dumb of
them to ignore U.S. government warnings and investigations over what must have
been piddly sales by volume (though probably with quite a profit margin, since
no one else was selling to Iran). Now it's totally blown up in their face.

~~~
chrischen
If its' a "war between China and the US" then dissolving and reforming a
company doesn't seem like that big of a deal.

~~~
hzhou321
Rightly so. At this point seems China has all the condition but a necessary
kick in the butt.

------
chrischen
I'm completely baffled by the US stance towards Iran. I understand they want
to eliminate Israel, but given that they suffered US meddling of a democratic
election, capitulated to the reduction of their nuclear program and
inspections, and otherwise cooperative with US demands, what is the reason for
continued sanctions? Is it due to the sheer inertia of legacy policies, the
Israeli lobby?

I can understand if it's the sheer inertia of legacy policies, since we
managed to sanction Cuba for no good reason. The people that end up getting
hurt from these policies set by average people thousands of miles away are
just average citizens.

~~~
lamarpye
For some reason, you didn't mention all of the terrorist activities Iran
engages in. Or hundreds of US soldiers killed by Iran. Learning about them
might reduce your level of bafflement.

~~~
chrischen
Can you provide sources? I'm going off of reports like the View News report on
Iran (HBO episode). They just showed normal teenagers who had to make
skateboards out of iron because they couldn't buy any real skateboards.

Seeing as how there was Iran deal on the table that Obama pushed for, then
that means reducing/removing sanctions is not as crazy as you are proposing.

~~~
lamarpye
I am not surprised to hear HBO take on Iran. Skateboards, pretty damning
stuff.

But it's not just skateboards: [https://en.wikipedia.org/wiki/Iran_and_state-
sponsored_terro...](https://en.wikipedia.org/wiki/Iran_and_state-
sponsored_terrorism)

[https://en.wikipedia.org/wiki/LGBT_rights_in_Iran#Capital_pu...](https://en.wikipedia.org/wiki/LGBT_rights_in_Iran#Capital_punishment)

~~~
chrischen
I am aware that they probably fund terrorism as part of their Death to America
stance. But the continued US sanctions are not going to help if we refuse to
reward them for correct behavior. They agree to deal, inspections, winding
down nuclear facilities, and we respond with erratic behavior. I wouldn’t be
suprised now they will increase their support of enemies of the US since we
are forcing them to be our enemy. And the US has never imposed sanctions on
countries with poor LGBT rights (having itself only recently accepted LGBT
people). We impose sanctions to get what we want, not protect human rights. We
deposed their democratically elected leaders for less than noble reasons.

~~~
lamarpye
Yeah, Iran probably (but who can say for sure) funds terrorism with that whole
Death to America thing. And gay marriage was only legal in the US in 2013 or
whenever. So not much difference between that and hanging people. Putting it
that way, I can see your bafflement.

~~~
chrischen
I think if you believe the US is sanctioning Iran because of their gay rights
record then that would be pretty naive. It's all about power and politics. We
didn't depose their democratically elected leaders for their benefit, that's
for sure.

------
hkmurakami
Chipmaking may go inhouse within national borders, but how many companies make
Semiconductor Capital Equipment? That's an even more concentrated industry
than the chip industry itself. The top 10 companies in the industry represent
90% of the market share by revenue, and 9 out of 10 are based in the US or
Japan. (1 is Dutch) The trend would dictate further export controls upstream.

[https://seekingalpha.com/article/4053221-top-10-semiconducto...](https://seekingalpha.com/article/4053221-top-10-semiconductor-
equipment-companies-grew-14_1-percent-2016-will-repeat-2017)

~~~
bogomipz
What is "Semiconductor Capital Equipment"? I looked at your link but there
didn't seem to be a reference to that term.

~~~
20after4
The industrial machines and tooling for manufacturing semiconductors. Some is
generic but a lot of that equipment is very specialized.

------
pc2g4d
Somebody help me understand: does the US really try to enforce its export
controls not just on our own country, but on foreign countries? Many countries
trade with Iran---do we really expect to keep all our goods from making it
there by way of third-parties?

~~~
genericone
This is absolutely the point of sanctions, its the modern day equivalent of
siege warfare. Using some arbitrary method, choke the flow of resources into a
nation-state and then the economy takes care of the rest. The nation-state
gives in to the demands if it is not strong enough. Anyone who attempts to get
around the methods imposed is basically trying to break through the siege.

------
stefan_
ZTE pretty much admitted the denial order is their end. From the denial order:

 _note that in its response to BIS 's notice of proposed activation of
suspended sanctions and in making its case for leniency, ZTE acknowledged that
it had submitted false statements, but argued that it would have been
irrational for ZTE to knowingly or intentionally mislead the U.S. Government
in light of the seriousness ofthe suspended sanctions. The heart ofits
argument is the question, posed by the company in rhetorical fashion, asking "
why would ZTEC risk paying another $300 million suspended fine and placement
on the denied parties list, which would effectively destroy the Company, to
avoid sending out employee letters of reprimand and deducting portions of
employee bonuses?" ZTE argued that BIS should not act until the company
completed an internal investigation so that ZTE could answer such questions._

------
hoodoof
Combine this sort of thing with China's increasingly aggressive military
stance, and in the long term, maybe medium or short term, world trade is going
to be completely reshaped.

Reliance on other countries now looks risky. If you manufacture in China,
you're crazy if you don't have a backup plan for your operations being shut
down as an outcome of government action on one side or the other.

~~~
pm90
No, they were repeatedly warned to not violate sanctions but kept ignoring
those warnings. If you break the law you have to deal with the consequences.

~~~
glenndebacker
Seems to be only for Chinese companies then...
[https://www.newyorker.com/news/news-desk/the-iran-
business-t...](https://www.newyorker.com/news/news-desk/the-iran-business-
ties-trump-didnt-disclose)

You really must be extremely naive to think that this has pure to do with not
following the rules after all the different arguments Americans/British have
produced why companies like Huwaei/ZTE/... (because America is so trustworthy)
are bad. I have the feeling that they just found a stick to beat the dog.

~~~
elp
"For my friends everything, for my enemies the law" \- Óscar R. Benavides

Trade agreements limit the size of import tariffs that can be imposed and this
bypasses those limits nicely. (Not that ZTE weren't stupid to do this in the
first place).

On the other hand if it suits the right company they can do what they want.
For example massive amounts of vanadium were shipped from the Congo to the US
during sanctions for use by the US aircraft industry.

------
joebadmo
Given that this is about Iran/N. Korea sanctions, why does it get conflated
with "tech cold war"?

~~~
shub
You think if Apple, IBM, Amazon, or another American giant got caught doing
this kind of stuff they would get sanctioned nearly as hard by the Trump
administration?

~~~
thefounder
I belive Xi would do the same.

~~~
yumraj
Exactly, imagine a US company supporting Tibet/Dalai Lama or Falun Gong etc.
China would most definitely ban them from doing business in China.

~~~
cf498
Do you have an example for that? I looked around a bit and only found China
not buying from weapon manufacturers anymore who also supplied Taiwan. When it
comes to pressure on topics like Tibet they seem to mostly pressure countries
instead of companies.

------
RachelF
Long term, this will backfire on the US.

China will probably just develop more stuff locally, further reducing US
influence.

~~~
threeseed
This makes no sense. China was always going to develop more stuff locally and
the US influence in the IT space was always going to decline. It's just a fact
when you have a country as big as China rising in prominence and strength you
will see declines elsewhere.

But when it comes to consumer products the US still has an innate
understanding of how to build products for the world. And China may be great
at building and duplicating but they haven't yet demonstrated how to do this
from scratch.

~~~
twblalock
Every successful industrialized nation after the first one (the UK) started by
copying the products of other nations. Germany was a notable early case of
this. So was Japan.

China did the same thing, and now Chinese industry is advanced enough that we
will see innovation coming from China. They are already there in software --
WeChat/WePay is a really big deal and it outcompetes payment systems from
American tech companies. I suspect we will soon see successful Chinese
innovations in AI, semiconductors, and automobiles.

~~~
dmix
> now Chinese industry is advanced enough that we will see innovation coming
> from China

People have been saying this forever and we're still waiting for any sign of
it. People love to over-simplify economics and make the big assumption that
the historical progress seen in the west in previous eras is a repeatable
system on a simple arc trajectory of advancement. But I personally believe it
is as much a product of the local (work) culture, politics, and economic
systems... not simply just a side-effect of the creation of a middle class.

Just look at Japan. They had a great period of innovation within a particular
period of chaos where the old cultural rules weren't being imposed and whole
new industries were developed. Which later became crippled by a variety of
forces, including most notably culture and how 'elders'/successful companies
are treated like gods, while upstarts became marginalized as the larger firms
became politically entrenched. Now that the systems are in place the creative
class has largely been stamped out.

That had little to do with Japan's particular position on some growth model
but a variety of distinct local forces.

This type of thing is also not just a product of industry but also
academically, which we've also seen a lack of larger sweeping innovations
coming out of China, instead mostly just narrower progress within existing
western thought. It's entirely possible that what China is best at is these
type of things, mastering these individual existing categories, optimizing
them, and working harder than anyone else at them. Rather than developing the
more creative innovations which bring together disparate pieces from other
areas into new ones.

That too seems to be a result of cultural and economic system... not simply
their position within some predicable growth model which worked in the west.

~~~
est
> People have been saying this forever and we're still waiting for any sign of
> it

If you are into AI you can looks up recent papers. Most of the authors are
Chinese.

And yes most of the authors are studying in the US, but Trump administration
are making them very difficult to work in the US, so they will all gradually
return to China someday.

~~~
dmix
> but Trump administration are making them very difficult to work in the US

Is there any evidence this is true yet? I thought they were only going after
'chain migration' which has nothing to do with skilled workers? Or do you mean
the rumblings about cracking down on those H1b mill companies gaming the
system?

------
thotaway
It’s a company created by the Chinese government. They’ll just create another
one to replace it.

~~~
frandroid
Even with China's scale, you don't rebuild a 75,000-person tech company from
scratch. Brand awareness is quite important in the consumer electronics
sector, and it would take a lot of effort and investment to retake that #4
cellphone vendor position with a new brand.

~~~
RIMR
No, it really wouldn't.

They already have all the staff and the tech. They just need to rebrand, and
since the new company won't be ZTE, they'll just start buying American
components again.

Replace all ZTE ads with ads for the new company, and never explicitly say
that this is the rebirth of ZTE, while still making it very obvious to the
consumer.

This will all be a blip on the radar.

For those who remember the TechTV/G4 merger - remember when The Screen Savers
was "cancelled" and then a "new show" called Attack of the Show started airing
in the exact same timeslot, with the exact same people, on the exact same set
- but the branding was different?

That's what the Chinese government is going to do to ZTE and all its assets.

~~~
sameyolo
No need to bring up such horrible historical events such as the destruction of
TechTV.

------
Nokinside
Semiconductor industry is a strategic industry.

Even if China is not isolated from the global trade the same way as Soviet
Union once was, it must duplicate several industries if it want's to act
independently from the global order.

------
Karishma1234
This is mostly going to be a restructuring. Chinese companies will continue to
help (and according to me they should) Iran and North Korea. Now they are
going to split US only and non-US entity.

------
newnewpdro
I didn't see it mentioned in the article - what is the cost to the US
companies losing ZTE's business?

~~~
RIMR
I don't know the exact numbers, but I imagining it is substantial in the
short-term.

Also, this motivates China to produce more components domestically, which will
permanently sway Chinese companies away from US suppliers, so in the long-
term, this could do tens of billions of dollars in damage to the US.

~~~
newnewpdro
Perhaps the assumption is that ZTE's competitors sourcing similar US
components will make up the difference in increased sales when ZTE's business
falters.

------
bigiain
I guess this has just become a relic:

[https://flic.kr/p/JS7QJd](https://flic.kr/p/JS7QJd)

(ZTE Firefox Phone. Still works too, I powered it up the other weekend...
Might have to put a SIM in it - I bet nobody's targeting _that_ with
zerodays...)

------
jkingsman
Curious if this will start a trend for more and more manufacturers to take as
much in house as they can if they're dependent on the US market for
components. Huawei and Xiaomi are already getting rolling with it.

~~~
frandroid
Absolutely. As the article mentions, this is a big policy goal of Xi Jinping.

~~~
jkingsman
Totally -- but policy goals and actually getting the gears of the
corporatosaurus moving are often not quite in lockstep.

------
exabrial
> _According to the United States government, the company used an elaborate
> system to sell American-made goods there, and then lied and deleted emails
> when the Commerce Department began to investigate. It even made plans to
> resume shipments to Iran while the investigation was ongoing, according to
> the Commerce Department._

Unfortunately the truth doesn't make good headlines like "TRUMP STARTING TRADE
WAR", but I think this best sums up what's happening and why.

------
kevin_b_er
I wonder what the retaliation will be.

~~~
solotronics
To me it seems we are finally starting to play the same game as the Chinese,
they strategically use companies on a national scale to gain and keep trade
advantages. I think in some cases such as metal refining they are able to
coordinate on a national scale with the strategy of their government and
outmanuver independent companies. I consider this recent move the US
government waking up and starting to really fight the Chinese in key economic
areas.

~~~
chris_wot
God, I hope not. That leads to far more serious consequences, like out-and-out
war. Trade has its downsides, but one positive consequence is that it does
help reduce the likelihood that two sides will get into military conflict with
each other.

~~~
solotronics
The Chinese have basically no proven offensive capability outside their
immediate sphere of influence compared to the US. Compare the Navies and Air
Forces of each country and also the experience fighting foreign wars with
complicated logistics and such. From a geopolitical standpoint there is
probably close to zero chance of them initiating a war anywhere near north
america.

They have however been fighting a trade war and somewhat of a cold war for
years against the US.

------
volgo
Should ban Apple in response. Would be hilarious

~~~
bdcravens
I'm sure Foxconn wouldn't agree.

~~~
farseer
Foxconn is Taiwanese, albeit with a lot of mainland employees.

------
airesQ
This will foment a lot of anger.

It does look to me that the US is really at its best here in applying the rule
of law, and following the contract it had with ZTE to the letter.

But others will find it hard to believe, especially with Trump at the helm.

~~~
chris_wot
I can't stand Trump, and I personally find it hard to believe. There's a
reason they got banned from military bases.

------
brisance
Why is the NY Times spinning this as a "tech Cold War"? ZTE got caught
violating US sanctions against North Korean and Iran, and repeatedly lied to
US officials about it.

[https://www.commerce.gov/news/press-
releases/2018/04/secreta...](https://www.commerce.gov/news/press-
releases/2018/04/secretary-ross-announces-activation-zte-denial-order-
response-repeated)

~~~
propman
The NYT has easily the best journalists and in my opinion the best written
articles but post 2016, the constant Anti-American stance is entwined in every
article regardless of the subject. For subjects I have in depth knowledge of,
it's honestly pathetic how they subtlety spin everything into anti-America by
deliberately omitting key pieces of info.

Bloomberg for whatever reason has started having more and more misleading
headlines and articles, ironically right as they head to a subscription model.
The WSJ I still subscribe too, mainly because it's more business and less
politics related though the comment section unfortunately resembles only a
slightly more dignified version of a Breitbart commenter.

