Beijing’s recent expansion of restrictions on the use of iPhones by government employees has triggered concerns among U.S. lawmakers and sent shockwaves through American tech companies with significant exposure to China. Apple, despite its strong ties with the Chinese government and a substantial presence in China, saw its stock decline by 2.9% in a single day – the most significant two-day drop since November.

This move underscores that even companies maintaining favorable relations with the Chinese government are not immune to escalating tensions between the United States and China. The ongoing Sino-U.S. friction has intensified, with Washington seeking to limit China’s access to crucial technologies, including advanced chip technology, while Beijing aims to reduce its reliance on American technology.

Last week, China’s Huawei launched the Mate 60 Pro smartphone, powered by an advanced chip from Chinese contract chipmaker SMIC. This development is seen as a breakthrough for the two companies affected by U.S. sanctions. The U.S. Commerce Department has expressed concern about the chip, which may violate trade restrictions.

The sanctions imposed on Huawei since 2019 have forced the company to reinvent itself at a significant cost to the Chinese government. The U.S. government is actively seeking more information about the Huawei chip to make informed decisions.

As Huawei grapples with reduced access to chipmaking tools, Apple has managed to gain some market share in China. If Huawei can supply and scale its homegrown Kirin 9000S chips, it may have an opportunity to regain its market share.

The impact of these developments is felt across the tech sector, with Apple supplier Qualcomm witnessing a 7.2% decline, leading to losses among major tech firms. Lawmakers from both major U.S. political parties have expressed concerns about national security risks associated with Chinese products, pressuring the Biden administration to adopt a more aggressive stance toward China.

The broader ban on iPhones is part of China’s strategy to limit Western companies’ access to its market. U.S. lawmakers view this as a tactic by the Chinese Communist Party to promote its national champions in telecommunications while squeezing out Western companies.

As China’s economy faces challenges, there is growing anticipation of more aggressive measures against foreign businesses. This situation has also affected other U.S. firms like Boeing and Micron. Suppliers of Apple, such as Broadcom, Skyworks Solutions, and Texas Instruments, have experienced stock declines, impacting the broader U.S. stock market, particularly the tech-heavy Nasdaq Composite.

This development serves as a reminder to investors that the U.S.-China relationship remains a significant risk factor for equity prices, particularly in the technology sector.

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