What just happened? Xiaomi is suing the US government after Donald Trump's administration designated the firm a 'Communist Chinese military company' and placed it on a blacklist that could force US investors to divest. The smartphone giant was one of nine Chinese companies added to the Pentagon blacklist on January 15, just days before Joe Biden's inauguration.

A 1999 law requires the Defense Department to compile a catalog of companies owned or controlled by the People's Liberation Army. The Pentagon has added 35 names so far, including chipmaker SMIC and Huawei.

Companies placed on the list are subject to an executive order from November 2020 that prohibits Americans from trading or investing in the firms. It also orders Americans with holdings to sell their stakes within one year.

On Friday, Xiaomi responded by filing a lawsuit against the US treasury and defense departments in the district court of Columbia. It claims that the designation is "unconstitutional because it deprives Xiaomi of its liberty and property rights without due process of law." As such, it violates the US Constitution's Fifth Amendment. Xiaomi also claims the investment ban will inflict "irreparable harm" on the company.

"By cutting off Xiaomi from US capital markets, the Designation and related restrictions will damage the company's ability to conduct, grow and finance its business, sell its products, maintain and grow its business relationships, and recruit and retain employees," reads the lawsuit. The firm's stock has fallen by up to 14 percent since being added to the list.

Xiaomi has repeatedly denied any association with the Chinese government or military. "The company confirms that it is not owned, controlled, or affiliated with the Chinese military, and is not a 'Communist Chinese military company' defined under the NDAA," it said.

Xiaomi had the third-highest number of smartphone shipments in Q4 (43.3 million). It also saw the largest year-on-year increase (32 percent). Huawei, which is on the same blacklist and the US Commerce Department's 'entity list,' saw its YoY phone shipments fall 42.4 percent.