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TikTok Ban Exposes U.S. Policy Risks

Mar 25, 2024
  • Yu Xiang

    Senior Fellow, China Construction Bank Research Institute


TikTok CEO Shou Zi Chew testified for the first time on Capitol Hill on March 24, 2023.

For a long time, U.S. government-issued bonds have been considered among the safest investment products worldwide, largely due to trust in the efficiency, rationality and objectivity of the American government and legal system, as well as respect for the market status of corporations and the spirit of contracts.

However, the U.S. House Energy and Commerce Committee’s passing of the Protecting Americans from Foreign Adversary Controlled Applications Act sent shockwaves through international markets. The bill mandates that ByteDance — a company with Chinese background — divest TikTok, its short video social application business in the United States within 180 days. The bill would also make it unlawful for app stores run by Apple, Google and others to offer TikTok or provide web hosting services for apps controlled by ByteDance.

Further approvals from the full House and Senate — and the president’s signature — are required to turn the proposal into law. But people should know, first, that TikTok operates as an independent, market-driven company. It avoids monopolistic behavior or any substantive actions that compromise national security. The intervention by U.S. authorities and their unreasonable demands for divestiture contravene the market principles that the U.S. espouses.

Second, the broadening and politicization of the concept of national security has raised widespread concerns about personal data and information security and the safety of assets within the United States.

The key reason the U.S. Congress wants to forcibly legislate the divestiture of TikTok by ByteDance is Americans’ alleged concern over security. Specifically, in the case of TikTok, the purported threats to U.S. national security are largely based on misunderstandings and assumptions unsupported by evidence. In fact, the aforementioned accusations and concerns can be debunked:

● Regarding data privacy and security, TikTok has implemented strict data security measures to ensure the safety of user information. Like many international technology companies, TikTok also employs advanced encryption and data management technologies to protect user data. Moreover, it has clearly noted that its data centers are in the U.S. and Singapore, meaning that data from American users is not transmitted to China. Therefore, the notion that TikTok poses a data security threat lacks specific evidence.

● TikTok has taken steps to increase the transparency of its algorithms and is working hard to help users and regulatory bodies understand how its content recommendation system works. Of course, the issue of transparency is not unique to TikTok but is a challenge that the entire technology industry needs to solve.

● Despite concerns about TikTok conducting content censorship, it has demonstrated the transparency of its content moderation policies and is committed to providing a diverse free-expression platform. Like other social media platforms, TikTok also has community guidelines and standards, which are publicly accessible. Further, there is no concrete evidence to suggest that TikTok is used as a vehicle to promote any governmental or non-governmental political agendas.

● Regarding legislative and regulatory differences, Chinese law does have certain specific requirements. But it’s unfair to single out TikTok based on this alone, as many international companies face legal and regulatory challenges across different states and countries. TikTok has already cooperated with U.S. regulatory bodies and is committed to adhering to America’s laws and regulations. 

It is necessary to scrutinize the safety of any technology platform, but specific concerns about TikTok should be based on concrete evidence and fair assessments. Without clear evidence to support the claim of TikTok being a security threat, considering it as a special security threat is neither fair nor reasonable. The U.S. Congress should instead focus its efforts on establishing data and privacy protection laws that apply to all major technology companies.

Ironically, the legal entities of TikTok and ByteDance are actually registered in the Cayman Islands. Therefore, strictly speaking, ByteDance is a multinational company with business in China. Moreover, before the House of Representatives introduced the ban proposal, President Joe Biden’s campaign team created an account on TikTok to post short videos to attract young voters. TikTok, in the United States has become a phenom, all the while adhering to U.S. law. According to a report by Statista in January last year, there are approximately 113 million TikTok users in the U.S., demonstrating the platform’s extensive audience reach.

Third, some politicians have faced setbacks in their lawsuits against TikTok. In April last year, the Restrict Act, which was supported by the White House, failed to pass. This act would have empowered the government to ban TikTok if it were deemed a national security threat. In May, a statewide TikTok download ban signed by the governor of Montana was overturned by a federal judge. Such incidents highlight the legal, political and social challenges the U.S. faces in dealing with foreign companies. They also reflect the complex balancing act required in the realms of national security, technology regulation and human rights in an era of globalization.

At present, banning TikTok simply because it has a Chinese root is not a wise political move. A ban will only reveal that political manipulation is at work; but it could also harm America’s soft power. As a global social media platform, TikTok has broad appeal among the younger generation in the United States. Banning it amounts to a restriction on freedom of speech and creative expression, damaging America’s image as an advocate for freedom of expression and open markets. Moreover, a ban could be viewed by other countries as a negative example of internet sovereignty and governance, impacting America’s leadership in crafting a global internet policy.

The potential ban could extend the so-called Sino-U.S. tech cold war into economic and trade fields, threatening bilateral stability. At this juncture, economic and trade cooperation with minimal political interference is particularly precious to both China and the U.S. and cannot withstand external disturbances. According to data released by the U.S. Department of Commerce in January, U.S. imports from China decreased by nearly 20 percent last year.

Despite the trade war that started in 2018, China maintained its position as the largest supplier to the U.S.. Last year, total U.S. goods imported from China accounted for 13.9 percent of all imports, the lowest level since 2004. At the peak of Sino-U.S. trade in 2017, 21 percent of U.S. total imports came from China.

All of this shows that the Sino-U.S. trade relationship has undergone significant changes since the trade war in 2018, and there’s a tendency toward fragility in economic and trade relations. Economic and trade relations serve as a ballast stone, but the volatility and drift of Sino-U.S. relations will increase.

The banning of TikTok would be perceived as unfair treatment of companies with Chinese investment by the United States, harming the trust and willingness of China cooperate in the financial sector. This action could cause investors to question the predictability and openness of the American market, thus impacting their investment decisions.

Tensions between China and the U.S. might also lead to instability and fluctuations in financial markets, affecting both countries and the global financial scene. Such measures could trigger a tit-for-tat policy response, leading to broader technology and trade barriers and impacting long-term strategic planning and business investment.

In fact, the Foreign Company Accountability Act had signaled the policy risks of the U.S. as early as four years ago. It passed the U.S. Congress in 2020, aiming to increase the regulation and transparency of foreign companies listed in U.S. stock exchanges. It primarily targets companies with Chinese investment but affects companies from other countries as well. As April 2024 approaches, Chinese concept stocks listed in the U.S. are under scrutiny and are likely to face significant and frequent market impacts, increasing the difficulty of managing market value and testing the resilience of Sino-U.S. relations.

Further, the manipulation of a TikTok ban by U.S. politicians, particularly during an election year, highlights the uncertainty and risks associated with U.S. policies. It would undermine the confidence of international investors and pose significant risks to global economic development in 2024. Investors should pay close attention to these policy risks when making investment decisions.

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