US President Donald Trump has floated a plan to fine ZTE Corp and shake up its management as his administration considered rolling back more severe penalties that have crippled the Chinese telecommunications company.
Trump's proposal ran into immediate resistance in congress, where Republicans and Democrats accused the president of bending to pressure from Beijing to ease up on a company that has admitted to violating sanctions on Iran.
Their reaction could complicate Trump's efforts to win concessions from China that would narrow a $US335 billion annual trade gap.
Speaking at the White House on Tuesday, Trump said US technology companies have been hurt by an April Commerce Department decision that prohibits them from selling components to China's second-largest telecommunications equipment maker. ZTE shut down most of its production after the ruling was announced.
"They can pay a big price without necessarily damaging all of these American companies," Trump said.
Trump said ZTE may instead face a fine of up to $US1.3 billion, new management and a new board of directors.
Before Trump spoke, Republicans and Democrats in congress were already taking action to prevent him from easing pressure on ZTE.
The Senate Banking Committee voted 23-2 to make it harder for the president to modify penalties on Chinese telecommunications firms, and lawmakers said they were examining other possibilities.
"The proposed solution is like a wet noodle," said Senate Democratic Leader Chuck Schumer, who accused Trump of jeopardising national security for what he described as minor trade concessions.
According to sources familiar with the discussions, a proposed trade deal with China would lift a seven-year ban that prevents US chipmakers and other companies from selling components to ZTE, which makes smartphones and telecommunications networking gear.
In return, China would eliminate tariffs on US agriculture or agree to buy more farm products from the US.
The US Commerce Department imposed the ban in April after it determined that ZTE had broken an agreement after it pleaded guilty to shipping US goods and technology to Iran.
The ban has threatened the viability of ZTE by cutting off access to companies that supply 25 per cent to 30 per cent of its components. Suppliers include some of the biggest US tech companies, including Alphabet Inc's Google, which licences its Android operating system to ZTE, and chipmaker Qualcomm Inc.
The US Department of Defense has also stopped selling ZTE's mobile phones and modems in stores on its military bases, citing potential security risks.
US Treasury Secretary Steven Mnuchin told lawmakers that the treatment of ZTE was not "a quid pro quo or anything else" related to trade, and said national security concerns would be taken into consideration.
Republican and Democratic lawmakers said they were looking at ways to block any possible changes.