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Apple stock plunged nearly 4% on Thursday, triggering a massive tech selloff, after reports emerged that China has expanded restrictions on iPhone use by government employees. The world’s most valuable company was on track to lose around $100 billion in market capitalization, following its steepest one-day decline in over a month on Wednesday.

China’s government has reportedly instructed workers at some central agencies over recent weeks to cease using Apple devices for work purposes. The expanded iPhone ban deepens concerns about the potential financial impacts of escalating tensions between Washington and Beijing.

The U.S. has spent years limiting China’s access to key technologies, including cutting-edge semiconductors. Meanwhile, Beijing has aimed to reduce reliance on American tech, restricting shipments from companies like Boeing. Even Apple, despite its large Chinese market presence and previously strong government relations, appears unable to escape the crosshairs amid the spiraling diplomatic crisis.

“The restrictions have the potential to slow Apple’s sales growth in China,” said D.A Davidson analyst Tom Forte. “This could provide an additional challenge for the company.”

Apple suppliers and firms heavily exposed to China, including Broadcom, Qualcomm and Texas Instruments, also took major hits, falling between 1.4% and 4.7%. Apple’s selloff likewise dragged down the three major U.S. stock indexes.

Expanding Crackdown on iPhones

China’s government has long limited use of foreign tech products by state employees, citing security risks. But the fresh ban on iPhones marks an expansion of these restrictions, directly impacting Apple’s sales in one of its largest markets.

The Chinese government told staff at some central agencies in recent weeks to cease using Apple mobile devices for work, sources told Reuters ↗. It remains unclear how many employees have been impacted.

China’s state-owned telecom operators have also started offering discounts on Chinese brands like Huawei to encourage switching from iPhones, according to reports.

The iPhone maker relies on China for around 15% of total sales. Even amid a global decline in smartphone shipments, Apple’s iPhone sales in China grew by over 5% in its latest quarterly results.

Impact on Apple’s China Business

Analysts stated that even Apple, a firm that once enjoyed special access in China, cannot evade the effects of deteriorating U.S.-China relations. Its business prospects look increasingly threatened by the geopolitical turmoil.

“If Huawei has the capability to supply and scale its home-grown Kirin 9000S (chips), we see the Mate series phone as an opportunity for Huawei to increase its shipments and regain its market share,” said Bank of America analysts.

Huawei’s newest Mate 60 Pro is powered by an advanced Chinese-made chip, representing a major breakthrough for the company after U.S. sanctions ravaged its smartphone sales. The Mate 60 could allow Huawei to claw back market share lost to Apple in China.

Meanwhile, Apple is already battling slowing iPhone demand globally. China has been a rare bright spot amid otherwise underwhelming recent earnings results. The fresh iPhone restrictions cast doubt on the sustainability of Apple’s China rebound.

“The moves by Beijing also come at a time when Apple is grappling with a decline in iPhone sales, with China being a bright spot,” said Tom Forte of D.A Davidson.

Potential Silver Lining for Apple

Some analysts struck a more optimistic tone, arguing that next week’s expected launch of the iPhone 15 lineup could stimulate demand to counteract China’s restrictions.

Apple is preparing to unveil its latest iPhones on September 7, along with new smartwatches. The impending release of the iPhone 15, packed with expected upgrades like an always-on display and better cameras, may entice Chinese consumers.

“Apple could, however, see a demand boost after an event next week where it is expected to unveil its iPhone 15 line-up, as well as new smartwatches,” according to Reuters.

Upgrades to the standard iPhone 15 model are tipped to be relatively incremental. But the higher-end iPhone 15 Pro variants are rumored to get more substantial changes that could spur people to upgrade.

Some analysts also downplayed concerns about the iPhone crackdown, arguing it will have limited impact on Apple. Most Chinese government staff already use domestic brands, so the policy shift will not drastically alter the competitive landscape.

Shifting Sino-US Tech Landscape

Broader uncertainty will persist around the tech sector’s future in China as relations between Beijing and Washington remain on shaky ground. Chinese firms like Huawei and chipmaker SMIC already face stiff U.S. sanctions.

American companies are also increasingly in the crosshairs as China strengthens domestic alternatives and reduces reliance on foreign tech. Apple has managed to navigate choppy political waters so far, but the deepening divides pose challenges even for China’s most entrenched international brands.

As the Biden administration doubles down on technology export curbs targeting China, U.S. tech giants will have to adapt to survive in the world’s number two economy. Apple’s latest iPhone setback highlights how the rapidly shifting technology landscape will force difficult decisions for American companies caught in the fray.

Check out our website for more on the tech war between the U.S. and China. Our team of journalists keeps readers up to date on the key issues shaping this complex relationship.