The Chinese social media firm TikTok has pulled back from talks to site the headquarters for its non-China business in the UK, threatening the creation of 3,000 jobs, as fears grow of a tit-for-tat trade war between London and Beijing.

Its parent company, ByteDance, which is based in Beijing, had spent months in negotiations with the Department for International Trade and No 10 officials to expand operations in addition to the near 800 employed by TikTok.

It is understood talks were suspended after ByteDance executives cited the “wider geopolitical context” following the UK government’s ban on Chinese telecoms firm Huawei from developing Britain’s 5G mobile phone network.

The company had been hopeful of gaining concessions for a headquarters building in London but will now look at rival cities with Dublin, where several staff are already located, understood to be a leading contender.

The move will heighten fears that China will use commercial relationships to punish the UK following the diplomatic dispute over a clampdown on security in Hong Kong and the oppression of the Uighur community in north-west China.

TikTok, which is a video-sharing app similar to Snapchat and Instagram that lets users post clips that are 15 to 60 seconds long, is believed to have 1 billion users worldwide.

Critics have warned it is a spying tool for Beijing and like Huawei should be banned by the UK. ByteDance has pointed out that it has an American chief executive and several US executives on its board. It has consistently denied allegations that it shares user data.

India has already imposed a ban on TikTok and Donald Trump’s administration is considering following suit.

Last week Trump’s chief economic adviser said TikTok could break away from its Chinese parent to avoid being banned in the US. Trump has threatened to ban the company as a way to punish China over the coronavirus pandemic. Larry Kudlow declined to speculate on who could buy TikTok, but said “that’s a much better solution than banning” the platform.

UK officials are understood to be hopeful that ByteDance will rejoin talks after making clear in diplomatic channels that Britain only banned Huawei after pressure from the US.

As part of the high-level, behind-the-scenes contacts, Huawei was told that geopolitics had played a part, and was given the impression that it was possible the decision could be revisited in future, perhaps if Trump failed to win a second term and the anti-China stance in Washington eased.

A ByteDance spokesman said: “The UK is one of our most important markets globally, with a talented and diverse team in London, including senior leadership. UK employees have quadrupled over the last year and we expect continued strong growth.

“We remain fully committed to investing in London and inspiring creativity and bringing joy to our users around the world through our products and platforms,” he added.