The case discusses US trade sanctions on ZTE and how the decision pushed China’s second-largest telecommunications equipment maker to the brink of a collapse. ZTE was hit by the export restrictions imposed by the US government on it in March 2018 for allegedly making deals to ship certain parts from US technology companies to Iran in violation of US export controls that barred such sales. ZTE was banned from buying hardware, software and other components from American suppliers for seven years, a tough sentence for a company that sourced up to 30% of its components from the US. The injunction forced ZTE to cease operations, putting the company’s survival at risk. While some analysts alleged that the US has adopted protectionist measures against ZTE in attempts to curb China’s rapid rise in the telecommunications and technologies sectors others criticised the company for its noncompliance with contracts and rules.

However, in June 2018, US President Donald Trump intervened and lifted the sanctions against ZTE amid escalating trade tensions between China and the US. The ban was withdrawn in exchange for a series of penalties, including the company overhauling its top management, depositing US$400 million in an escrow account, bringing in an American monitoring team and paying a US$1 billion fine. The three-month ban led to more than US$1 billion of losses; ZTE’s share price was battered; and its long-time customers began scaling back deals with it. ZTE might have survived but its future looked uncertain as it reeled from mounting losses, strained relationships with major customers, a management overhaul and political uncertainties. The company’s new management faced the challenge of rebuilding market confidence, curbing financial losses, and gaining the trust of corporate customers. With the company being viewed as a national security threat by the US government, was ZTE out of the woods or was its survival was still at stake? How can ZTE rebalance away from over-reliance on foreign suppliers at a time when there is a rise of nationalism and protectionism due to the decisions and policies made by leaders around the world? Will ZTE’s global ambitions be threatened amid trade tensions between China and the US?

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Economics Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies

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Issues

The case is structured to achieve the following teaching objectives:

	Understand the new trend of slowing globalization because of more nationalism and protectionism due to the decisions and policies made by leaders around the world
	Understand the economic effects of trade protectionism and the impact of a US-China trade war
	Understand the importance of the US market to ZTE’s growth and analyze the events that led to the export ban on ZTE
	Understand the power struggle between the US and China and the need for China to create a self-reliant economy amid ZTE troubles
	Identify the challenges faced by ZTE and explore strategies that the company might adopt to recover its lost business and brand image.

Contents

INTRODUCTION

BACKGROUND NOTE

ZTE IN THE USA

ZTE’S TUSSLE WITH THE LAW

Keywords

Protectionism, Trade wars, International Management, Power transition theory, Free trade, Globalization, Managerial economics, Export ban, Trump-era protectionism, Compliance

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