The long-running saga of TikTok took a dramatic turn this past week. On March 13, the US House of Representatives passed a bipartisan bill that threatens to ban Chinese-owned viral short-video app TikTok unless it cuts ties with its Beijing-based parent ByteDance.
Dubbed “Protecting Americans from Foreign Adversary Controlled Applications Act”, it saw 197 Republican lawmakers and 155 Democrats voting for it; while 15 Republicans and 50 Democrats voted against. The bill now goes to the deeply divided US Senate where its prospects are unclear. President Biden, who faces a formidable challenge from his predecessor Donald Trump in November, has vowed to sign the bill if both houses pass it.
But don’t write off TikTok just yet. US lawmakers, the White House, and competitors like Meta Platforms which owns Instagram, Facebook and WhatsApp have been trying to kill TikTok for years. Indeed, Trump began railing against TikTok just two years into his term in office. While in the White House, Trump even signed an executive order to ban TikTok unless it was acquired by a US company, alleging the Chinese government was using the video-sharing service to surveil millions of Americans. The order never went into effect after it was challenged in federal court.
In a dramatic about-turn, Trump, leader of the “Make America Great Again” movement, last week said that the Chinese app is good for America while its rival American family of apps owned by Meta is bad for Americans. Last week, Trump warned against banning TikTok, saying it would only empower US-owned Facebook, which he described as the “enemy of the people”.
“There’s a lot of good and there’s a lot of bad with TikTok, but the thing I don’t like is that without TikTok, you’re going to make Facebook bigger, and I consider Facebook to be an enemy of the people, along with a lot of the media,” Trump said. “There are a lot of people on TikTok that love it. There are a lot of young kids on TikTok who would go crazy without it… I’m not looking to make Facebook double the size… I think Facebook has been very bad for our country.”
Eye on privacy, security
What’s all the fuss about? As a popular smartphone app, TikTok, with more than 170 million American users, has been under increasing scrutiny by Washington as a potential privacy and security risk to US citizens. Its appeal lies heavily in its “addictive” video feed, called the “For You” feed. The app builds this feed through a “recommendation engine” that uses artificial intelligence (AI) technologies and data mining practices. The recommendation engine relies on a complex set of weighted factors to recommend content, including hashtags and videos watched previously, as well as the kind of user device. TikTok detractors cite problems with how much data TikTok collects from and about its users and with how that data is stored — and could be shared. Some critics have also raised concerns about how TikTok promotes certain content to users and the potential to spread misinformation or propaganda.
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There is also China’s National Intelligence Law of 2017 which requires Chinese organisations and citizens to “support, assist and cooperate with the state intelligence work”. American policymakers argue that its parent ByteDance is beholden to the Chinese Communist Party (CCP), which could demand access to the data of TikTok’s consumers in the US any time it wants in accordance with the 2017 security law. In April 2021, China Internet Investment Fund, controlled by state-owned Cyberspace Administration of China and China Media Group purchased a 1% stake or a golden share in ByteDance.
US lawmakers argue that TikTok, whose algorithm was developed in China and which routinely stores data on servers that are accessible to Beijing, regularly “leaks data” to the CCP and as such has to be to be separated from everything else that the Beijing-regulated ByteDance does if it is to be allowed to operate on US soil and access the data of 170 million Americans.
While foreigners are allowed to own newspapers in the US, they cannot own TV networks. Australian tycoon Rupert Murdoch, who owned US newspapers for decades, had to become a US citizen to legally own his Fox TV network. Most other Western nations as well as China ban ownership of local media by foreigners. Just last week, the UK banned United Arab Emirates-backed investment firm RedBird-IMI from buying control of London’s Daily Telegraph and The Spectator weekly.
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Plenty of US Congressmen argued that lawmakers carefully consider the message America is sending to the world by passing the bill. “The answer to authoritarianism is not more authoritarianism,” said Republican lawmaker Tom McClintock told the House of Representatives last week. “Let us slow down before we blunder down this very steep and slippery slope.”
Jim Himes, the ranking Democratic member of the House Intelligence Committee, couldn’t agree more. “One of the key differences between us and those adversaries is the fact that they shut down newspapers, broadcast stations, and social media platforms. We do not,” he said in his speech. “We trust our citizens to be worthy of their democracy. We do not trust our government to decide what information they may or may not see.”
The focus now is on the Senate which is likely to pass its own version of the bill. That in turn will then be sent back to the House for reconciliation, a process that can be excruciating even in normal times. “The current bill is framed in such a way to allow the threat of a ban to force a divesture of TikTok by ByteDance,” Nikolas Guggenberger, assistant professor at University of Houston Law Center, told The Edge Singapore in a recent interview. “If the Administration were to act based on what has been passed what would follow is the threat of a ban and under such a threat any company will agree to a divesture.” Guggenberger doesn’t foresee an actual ban on TikTok.
Once the bill becomes law, it will be challenged in court. “ByteDance could challenge the divesture, or the shareholders of ByteDance, including the billionaire American VCs, could challenge — and of course the users of TikTok could make a claim under the US First Amendment saying as a user they will be limited in the sources of information that they can consult if ByteDance is forced to divest or the app is banned entirely,” says Guggenberger. “The First Amendment case may or may not succeed but I think there will be users who will make the claim.”
Privacy will remain a major concern for TikTok users even after ByteDance’s divesture. “Practically, that will just mean we have an American company instead of a Chinese one exploiting users’ data and manipulating their behaviours,” Guggenberger says. “We might believe we are more comfortable having an American company collecting and exploiting our data and manipulating our behavioural biases, but all that will change is that there is a different owner doing the same thing.”
He adds if the concern really was privacy, Congress could pass an Omnibus privacy bill which would help address privacy issues and at the same time prevent China from accessing the data. “If there were adequate privacy protection in the US, it would not matter whether TikTok was a Chinese-owned or American-owned entity because the law would prevent the owners from accessing users’ data. But lawmakers have chosen to take a different route by threatening a ban to force a divesture.”
Guggenberger argues that US firms are not prevented from selling users’ data. An American company could sell data to whoever is willing to pay. “There is no law that bans US companies from selling data even to the Chinese,” he notes. “Internet firms collect data and sell it to data brokers who in turn can sell it to whoever they want. They can always say, ‘we sold it to a broker and we have no idea who they sold it to.’ Even if a US company runs TikTok, there is no guarantee that users’ data will no longer flow to China.”
ByteDance was last valued at US$268 billion ($357.3 billion). TikTok had revenues of around US$20 billion last year, up five-fold from just US$4 billion in 2021. It loses money because of the investments it is making to build its e-commerce platform. Angelo Zino, Internet analyst at CFRA Research, estimates a standalone US-only TikTok would be worth US$60 billion, assuming ByteDance would separate TikTok’s US arm from the TikTok version that the rest of the world’s users can access. Essentially, there would be three short-form video apps — an independent TikTok US and ByteDance-owned Douyin in China as well as TikTok for everyone else.
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Looking ahead
So, what’s next? If there is a forced sale of TikTok, only a handful of US companies have the resources to buy it — one of the Magnificent 7 tech firms like software giant Microsoft, social network behemoth Meta Platforms, e-commerce supremo Amazon.com and search giant Google’s owner Alphabet. It is highly unlikely that AI chip maker Nvidia or EV pioneer Tesla — owned by billionaire Elon Musk who purchased Twitter (now called X) in 2022 — or iPhone maker Apple will show any interest in TikTok. Who else might throw their hat in the ring? Perhaps one of the “Big 4” private equity firms like Apollo Global Management, KKR & Co, Carlyle Group and Blackstone Group; or software firm Oracle which leases out cloud servers to TikTok; or retail powerhouse Walmart. TikTok is so big that the ultimate buyer will likely be a consortium that includes several of those players.
Ironically, the divesture of TikTok will strengthen ByteDance’s balance sheet. The sale will provide a huge cash injection for the Beijing-based parent while taking away a large loss-making subsidiary. It will also likely speed up the planned IPO in Hong Kong, allowing its US venture capitalist shareholders to finally realise their gains. A ByteDance listing which could raise tens of billions of US dollars would be a huge boost to Hong Kong whose market has yet to recover from the abrupt cancellation of Chinese fintech giant Ant Group’s IPO in late 2020.
What does it all mean for already fragile Sino-US relations? The brouhaha over TikTok speaks to significant mistrust between Washington and Beijing, prominent US political risk analyst Ian Bremmer noted in a commentary last week. Americans and Chinese have spied on each other for decades, but the key issue is that “China doesn’t allow Western social media companies to have access to its population and data”, Bremmer notes, and as such Western nations are unwilling to give companies like TikTok a free pass. “No one should be all that surprised that the Americans are interested in forcing ByteDance to spin off TikTok.”
Bremmer argues that “forcing China to spin off TikTok is a reasonable thing for the Americans to do, but it will be one more straw on the camel’s back”. For its part, Beijing has made it clear that it does not want to spin TikTok off and has vowed to block the deal. “We’ll see if their bark is equivalent to their bite,” Bremmer adds.
Assif Shameen is a technology and business writer based in North America
