White House Director of Legislative Affairs Marc Short speaks to members of the media as he leaves a Republican conference meeting June 7, 2018 on Capitol in Washington, DC. House GOPers gathered to discuss immigration.

Huawei could play a role in the ongoing trade negotiations between the U.S. and China, but the Chinese tech giant has to stop working with Iran, Marc Short, Vice President Mike Pence's chief of staff, said Wednesday.

Federal prosecutors have lodged criminal charges against Huawei, alleging that the company lied about its dealings with Iran — which is the subject of an aggressive pressure campaign and sanctions from President Donald Trump's administration.

Short told CNBC's "Squawk Box" on Wednesday morning that "it's possible" that Huawei "gets included in a trade deal" with China.

But he quickly cautioned that Huawei is "more or less a wholly owned subsidiary of the Communist Party of China. And the reality is, what Huawei has been doing, the reason there are sanctions on it now, is because they've been facilitating, aiding the government in Iran with technology."

"That's why the recent sanctions were applied to Huawei. So, they need to stop those actions, stop cooperating with Iran at this time if they want to actually work with the United States."

Asked if Huawei's Iran dealings posed a bigger obstacle to a trade deal than its alleged national security threat, Short said, "I think it's both."

The U.S. has challenged Huawei on multiple fronts. Government agencies and their contractors have been blocked by the U.S. from buying Huawei's telecommunications hardware. Washington says that Huawei's symbiotic relationship with China poses a national security threat. Huawei is suing to abolish that ban.

Despite those tensions — and Trump's comments Monday that the U.S. is "not ready" to make a deal with China — Short said the U.S. is still "more than open to a trade deal."

"The United States wants to make a trade deal, but China has to change its actions. They have to change their forced transfer of technology, they have to change their stealing of intellectual property, and they have to change some of the actions of companies like Huawei," Short said.

A spokeswoman for Pence did not immediately respond to CNBC's request for comment on Short's remarks.