The US Commerce Department has banned local manufactures from selling components to ZTE over allegations that ZTE planned to export controlled US components to Iran.
Overseas manufactures will also be prohibited from selling products to ZTE that contain a significant percentage of US-made parts, Reuters reported.
The Commerce Department has accused ZTE of using a series of shell companies to re-export controlled high-tech items to Iran in violation of US export control laws, the report states.
It has also claimed that ZTE has acted contrary to the national security or foreign policy interests of the US.
While the restriction will not stop ZTE from selling its smartphones in the US, it is expected to have a significant effect on ZTE and a number of its suppliers. The company could face difficulty finding replacements for the high-end components it exports from the US.
But the decision has also drawn the ire of some US trade groups, which believe the decision could hurt the local technology sector as well.
In an interview with the Wall Street Journal, ZTE USA chief Cheng Lixin said he was “shocked and surprised” by the decision, and pledged to work with the US government to try to resolve the issue. ZTE has set up a special team of executives to respond to the situation.