On August 14, 2020, the Trump Administration issued an executive order that formally directed ByteDance, the Chinese technology company, to divest from video-sharing app TikTok. This move falls under the regulatory authority of the Committee on Foreign Investment in the United States (CFIUS), an interagency committee responsible for reviewing the risks of select foreign investment transactions. U.S. Treasury Secretary Steve Mnuchin, who chairs the committee, stated that it recommended the action after an “exhaustive review” of the transaction. While it is technically impossible for the Trump Administration to unilaterally “ban” TikTok from use, it is using regulatory tools to force its Chinese parent into a sale.
President Trump, via the order, states that “There is credible evidence that leads me to believe that ByteDance… might take action that threatens to impair the national security of the United States.” The order retroactively prohibits the acquisition of Musical.ly, a TikTok precursor, by Bytedance and orders the divestiture of all tangible/intangible assets, property, and user data related to TikTok within the next 90 days. Other Western countries may be under pressure from the US to further scrutinize or take similar actions against Chinese technology companies.
Microsoft has emerged as a potential buyer of the app, which is reportedly valued at around $50 billion. While shareholders have reacted positively to the news, The Economist notes that “reportedly wants reassurance that Beijing will not retaliate against its business in China.” The state-owned China Daily published an op-ed referring to the forced sale as a “smash and grab” and that China has “plenty of ways to respond.” Bytedance has reportedly faced domestic backlash after having been seen to bow to U.S. pressure. While purchasing the highly popular app is viewed by some as a fantastic opportunity for Microsoft, the combination of political risk and the technical complications of “carving out” TikTok from Bytedance could excessively complicate the deal. Bill Gates, in a recent interview with Wired, referred to the app as a “poison chalice.” The social media business, however alluring, presents a complicated, risky, and increasingly political equation for new entrants.
The executive order is the most recent in a series of American rhetoric and actions targeting TikTok and other Chinese technology companies, such as WeChat, on the basis of national security. While there are rightful concerns surrounding the protection of user data and content censorship, the “bans” also raise a multitude of concerns for American business. A WeChat ban could render iPhones “useless” in China, threatening Apple’s $44 billion business in the country. Many other U.S. multinationals expressed concern that a ban would limit their competitiveness in China, “for example by ending their ability to accept payments or advertise on WeChat.”
The Trump Administration had previously expanded the authority of CFIUS through the Foreign Investment Risk Review Modernization Act (FIRRMA), which became law on August 13, 2018. U.S. government scrutiny of Chinese tech investments in the U.S. is not a new phenomenon. In 2019, CFIUS forced Chinese companies to divest from Grindr, a dating app, and PatientsLikeMe, a health startup. The targeting of TikTok and WeChat reflects the same concerns surrounding Chinese access to U.S. data and further points to a widening digital divide between the world’s two largest economies. The scale of this most recent move far outweighs past actions, with potentially damaging implications for the future of Chinese technology investment overseas and global connectedness.