In August 2020, President Donald Trump took aim at two dominant Chinese apps, signing executive orders intending to restrict American use of both TikTok and WeChat. Following a series of additional prohibitions, as well as administrative and judicial delays in implementing them, the Trump administration in January ceded authority to the Biden presidency, with both apps still very much alive among U.S. users. Recent American court decisions and post-Trump political actions appear to throw lifelines to both Chinese tech services, at least in the short run.
Trump asserted in his orders that the two apps threatened the national security, foreign policy, and economy of the U.S. At the time of his announcement, TikTok revealed it had some 100 million monthly active users and more than 50 million daily active users in the U.S. The app allows users to make short videos often including dancing, lip-synching, and comedy, and fostered a cadre of celebrities with great appeal to the app’s youthful community – as of June 2020, some 62 percent of TikTok users were younger than 30.
While the number of American TikTok users was vast, the app’s content and demographic makeup indicate the threat to national security was likely overstated.
As for WeChat, its U.S. user base was far smaller, at some 19 million daily active users. Chinese students and expatriates, along with some Americans with personal or business interests in China, would be most affected by the restrictions.
The initial executive orders were quickly followed with a Treasury Department order that ByteDance divest itself of Musical.ly, the U.S.-based social media platform ByteDance had purchased in 2017 and merged into Tiktok. The Committee on Foreign Investment in the U.S. (CFIUS), which in 2019 had conducted an investigation of the acquisition of the American company, would be the mechanism to enforce the Treasury order. In September, the Commerce Department announced further prohibitions on Internet hosting and content delivery of the two apps, as well as on use of WeChat’s popular WeChat Pay function for transfer of funds within the U.S.
Bytedance responded to the TikTok sanctions by proposing the creation of a new company, TikTok Global, in which American companies Oracle and Walmart would hold a 20 percent stake, to ByteDance’s 80 percent ownership. Oracle indicated ByteDance would eventually lose its ownership share, and President Trump initially indicated his approval. However, when ByteDance asserted it would in fact keep its 80 percent share, Trump promptly reversed course, and continued his campaign against the app.
In the midst of the bombardment of American actions and reactions, the Chinese government had its own concerns about a possible sale of TikTok’s valuable algorithm. At the end of August, China’s Ministry of Commerce published a revised catalog of technologies prohibited or restricted for export from China. TikTok’s artificial intelligence interactive interface, as well as its information push service, fell within the restricted technologies. While ByteDance maintained the deal would not involve the transfer of any algorithms and technology, it nevertheless applied for a permit from the Beijing Municipal Commerce Bureau in accordance with the regulations. The chances for approval seemed slim, and as of mid-February, the Commerce Bureau’s website listed no technology export approval for ByteDance’s application.
Both American bans also faced legal challenges in U.S. courts, and arguments in favor of protecting free speech seemed to be winning the Chinese apps reprieves from restriction. In separate decisions in October and December, judges blocked the Commerce Department from implementing restrictions on TikTok. In mid-January, an appeals court expressed skepticism of the WeChat ban, questioning the U.S. government’s use of emergency-powers authority. And on January 15, the Trump administration agreed to extend the deadline to February 18 for TikTok’s potential sale to American investors.
How will the Biden administration act toward these and other Chinese tech firms? A look back at Obama administration policies can help gauge possible forthcoming actions. In 2010, only two years into Barack Obama’s first term, Chinese telecom firms Huawei Technologies and ZTE Corporation were shut out of a lucrative contract to supply Sprint Nextel as then Commerce Secretary Gary Locke expressed concerns, and the Defense Department indicated Chinese cyber capabilities could threaten its network. In 2016, the Commerce Department put trade sanctions on ZTE and subpoenaed Huawei following allegations of exports to sanctioned nations.
Fast forward to the Biden administration, which seemed to be taking the recent court challenges and decisions into account. On February 10, the Justice Department asked to delay the government’s appeal of the December federal district court injunction against the TikTok ban. Moreover, talks between CFIUS and TikTok continued, with the possible use of a trusted third party to manage TikTok’s data as an alternative to an outright sale. However, in an echo of the Obama stance, incoming National Security Council Spokeswoman Emily Horne indicated the government planned to “develop a comprehensive approach to securing U.S. data… this includes the risk posed by Chinese apps.”
The last days of the Trump administration saw another challenge to WeChat, as on January 5 WeChat’s Pay function was on a list of eight Chinese apps whose transactions were to be barred after a period of 45 days. As with the TikTok case, the order would take effect in mid-February, under prospective new Biden administration Commerce Secretary Gina Raimondo. In testimony during her Senate confirmation hearing that may have indicated her stance toward Chinese tech firms, Raimondo would not commit to maintaining the Trump administration’s blacklisting of Huawei.
Even with a new administration in Washington, Chinese telecom and social media companies could continue to use the American court system to stymie U.S. sanctions. On February 8, Huawei filed a lawsuit in the U.S. Court of Appeals for the Fifth Circuit disputing its designation as a national security threat.
While the Biden administration mulls over its strategy going forward, the court battles and fresh faces in political positions could put a hold on U.S. action, and give breathing space to Chinese firms seeking to avoid punitive policies. But ByteDance, Tencent, and other Chinese tech companies such as Huawei are not yet out of the woods, and post-Trump national security concerns could yet present challenges to doing business in the U.S. and the American consumer market.
In any event, clarity is needed going forward. Following the seemingly ad hoc nature of policies under former President Trump, the Biden administration would do well to set clear and coherent guidelines for Chinese tech company participation in the U.S. market. Without these, cutting-edge Chinese corporations could be tempted to avoid any business interactions altogether with the U.S., leading to further polarization and decoupling of the world’s two largest economies.