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China retaliates with sorghum tariffs after US bars ZTE from sourcing components

The US government has banned American companies from selling components and software to China's ZTE Corp, a state-owned telecom gear and smartphone maker, prompting concerns that trade frictions between the two biggest economies in the world may escalate into a full-scale trade war. Chinese observers suggest the latest US move is aimed at targeting China's burgeoning high-tech sector.

The US Commerce Department proclaimed on April 16 that it will prohibit ZTE from sourcing parts, software and technologies from any US-based companies, due to the Chinese company’s failure to punish its employees involved in illegal conduct, as required by a previous sanction settlement. The ban is effective immediately and would last for seven years, generally regarded a golden period for the world to develop fifth-generation (5G) wireless technology., a Taiwan-based business news portal said in a commentary that the US move mainly intends to stifle China's development of 5G telecom technology, allowing US technologies in the sector to gain “absolute predominance”. “It's generally believed the ban would not only risk igniting a trade war but affect construction of 5G telecom network at a global level,” wrote the commentary.

According to an analysis by China International Capital Corporation (CICC), one of China's leading investment banks, if ZTE failed to reach a settlement with the US government in one or two months, its production and sales of telecom equipment and smartphones would be seriously affected. Fang Jing, an electronics industry analyst with China Merchants Securities was quoted as saying that the US may intend to gain more leverage in negotiations through the rigorous action which would deal a huge blow to China's communications and semiconductor industries.

Fang analyzed the ban may be imposed to pressure China's Ministry of Commerce (MOFCOM) to grant approval to the $44 billion takeover of NXP Semiconductors by the US chipmaker Qualcomm. Reuters previously quoted analysts as saying “a decision by MOFCOM on the deal is unlikely to come before trade and investment tensions between China and the US are resolved.” The deal is reportedly crucial to Qualcomm, which is aiming to become a leading chip supplier to the world's booming auto market.

China's Ministry of Commerce quickly responded to the ZTE ban, pledging to take necessary measures to protect the interests of Chinese businesses while noting the Shenzhen-based company had created tens of thousands of jobs in America and engaged in cooperation with hundreds of American companies.

In recent years, it has been widely reported by the Chinese media that ZTE and Huawei Technologies Co. have repeatedly met with setbacks in the US markets. At the beginning of the year, Texas-based Republican Michael Conaway proposed a bill, urging the US government agencies to stay away from phones and equipment from the companies which are alleged to be tied to the Chinese government. The ban, called Defending U.S. Government Communications Act, claims to safeguard the US national security interests.

Huawei had planned to enter the US market in the year 2018, through cooperation with AT&T, the second-largest provider of mobile phone services in the world. The deal finally failed after being blocked by the US government. Considering brands like Ericsson and Sony have long become well-established in the market, according to Chinese analysts, besides deep-rooted prejudice, the US has now become hyper-vigilant of China's growing technological clout in the 5G communications sector.

One day after the US ban of ZTE, China's Ministry of Commerce announced to impose temporary anti-dumping duties on US sorghum imports. “The 'trade frictions' roused by the Trump administration take aim at China's more vulnerable hi-tech sectors, while at the same time, China is the second-biggest importer of US farm produce in the world, after Canada,” said Bai Ming, the international market director with the Chinese Academy of International Trade and Economic Cooperation, MOFCOM, in an interview with the Beijing News, a daily newspaper.

Based on a previous MOFCOM statement, prices of sorghum imports from the US had been going down while its volume entering Chinese markets continued to go up, which the Chinese Commerce Ministry says has inflicted considerable harm to China's domestic sorghum industry.

US exporters either regard China as the main market or its single market. And the exports to China constitute a big share of its total volume of exports, according to Zhao Ping, a research director with the China Council for the Promotion of International Trade (CCPIT). Based on the data from the US Grains Council, three fourths of sorghum exports from the US were headed to China.

On the other hand, China's electronics industry could not help with its dependence on the US-made chips. Gu Wenjun, chief analyst of ICWise, an electronics industry consultancy, said in an article that China's seemingly robust electronics industry is at the lower-end of global production chain, with ZTE relying on mainly American suppliers for its crucial chips and components.

According to Gu, as China-US trade frictions escalate and expand to new fronts, the two economies are seeking to gain more leverage in future negotiations. Despite that, Gu predicted the dilemma of ZTE may finally be addressed through negotiations between the two governments before further damage is done.

“The first step is for ZTE to stand up to cross-examinations in bid to repudiate the US claims, while the second step is for China's Ministry of Commerce to engage in dialogue with its US counterpart,” Gu said, believing that the telecom gear makers may have to make concessions in order for the ban to be lifted.

Wang Shu, a semiconductor analyst, told the Beijing News that once the ban was fully implemented, the company could hardly keep its operation for over three months, considering “some core parts (for manufacturing its products) could hardly be sourced in China right now.”

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