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Time’s A-tickin’ for the TikTok Deal

Summary

As he undertakes a thorough review of Trump’s China policies, President Biden is expected to formulate a China strategy that puts American interests first and strengthens US competitiveness in the global market. While he maintains that his administration will take a different path than his predecessor, there is no doubt that heated competition is on the horizon - and TikTok may find itself at the forefront of the battle.

With over 800 million users worldwide, 100 million of which reside in the US, TikTok has taken the world by storm. From October 2017 to March 2019, the number of adult American users grew over 5.5 times, launching the app to the top spot as the most downloaded app of 2020. However, with its meteoric rise came increased scrutiny. Government lawmakers, concerned by Bytedance – the parent company of TikTok – and its susceptibility to Beijing’s request to hand over the mountains of data it stores on American users, rallied to action.

During the final weeks of his presidency, Trump took a hard stance on the company, claiming that the app was a threat to national security as it controlled too much data on American users. In August of 2020, he signed two executive orders which prohibited US companies from working with Bytedance and threatened to ban TikTok from US app stores unless Bytedance divested its US operations. In response, TikTok began courting partners and confirmed a deal to jointly own the app with Oracle. However, as the Biden administration moved into the White House and put a pause on the case, the deal was reportedly shelved. As of April 2021, it remains to be seen if Biden is simply reviewing the executive orders or if he intends to wholly depart from his predecessor’s China strategy.

The TikTok-Oracle deal

By the time Trump called for the TikTok ban, US-China tensions had already reached new depths. The administration targeted apps like TikTok and WeChat over their Chinese roots and moved to restrict their US footprints. On August 6th, President Trump signed the first of two executive orders which prevented China-based companies like TikTok from doing business in the US. Under the order, Trump also sought to ban Chinese communications platform WeChat, claiming its connection to the Chinese-owned company Tencent led to concerns over data privacy and, by extension, national security. Days later, the former administration released a second order compelling Bytedance to sell off all of its US operations within the subsequent 90 days, citing the company as a potential threat that could “impair the national security of the United States.” After weeks of courting partners, including major tech companies like Microsoft, it was reported that Oracle, the US software giant, was prepared to purchase and take over TikTok’s US operations for a whopping US$60 billion.

According to experts close to the source, TikTok reportedly believed that selling its US holdings to Oracle would allow the company to get on the Trump administration’s “good side,” particularly as Oracle co-founder Larry Ellison publicly supported the former president. However, the exit of Mr. Trump has freed TikTok from the capricious demands of the previous administration, and Biden’s desire to separate himself from the actions of his predecessor have allowed Bytedance to shelve the deal, leading many experts to believe that a TikTok-Oracle deal is permanently off the table.

A Departure in Policy

Biden has already begun to confront the enormous challenge of maintaining a tough stance on China as an economic and security challenge while simultaneously developing a more strategic and calculated approach than that of the former administration. Yet, many supporters credit President Trump for handling China in a much more aggressive manner, drawing from his policy toolbox to levy tariffs on Chinese products, limit sensitive US technology exports to China, and impose sanctions on Chinese officials and companies. As a small piece of a puzzle, Trump’s executive order requiring the TikTok selloff was a part of his larger approach to police China and attempt to establish dominance over the bilateral relationship. Because this often resulted in direct confrontation, many of Biden’s opponents now expect the President to maintain an equally combative stance to US-China relations and are quick to condemn actions perceived as “giving China a break.”

However, many supporters of the Biden administration are biting back, arguing that Mr. Trump’s frenzy of executive orders and sanctions were inconsistent, fragmented, and more often symbolic than actually effective. Furthermore, though he pressed China hard on some fronts, he gave in on others. He delayed sanctioning officials and companies over human rights violations in China’s northwest region of Xinjiang and publicly flattered President Xi Jinping’s authoritative leadership style. Many of his executive actions were either left incomplete or riddled with loopholes, including the WeChat ban and the TikTok deal, and were rarely enforced. Additionally, many were considered unconstitutional, as evidenced by a US federal judge issuing a preliminary injunction against Trump’s TikTok ban in December 2020, citing that the president’s emergency executive order overstepped his authority. All in all, Trump’s tit-for-tat China strategy brought more noise than actual results in the bilateral relationship.

Given the TikTok acquisition deal was touted as a major accomplishment by the previous administration, Biden’s reversal may signal a departure of policy from his predecessor. In particular, the current administration may be adopting a more targeted, strategic plan towards China and its various companies with US operations compared to Trump’s comparatively unilateral, aggressive approach. One hundred days into Biden’s presidency, there are reports that the administration is conducting a comprehensive review of Trump’s China policies. During a routine press conference in February, White House spokeswoman Jen Psaki commented that there is no specific timetable for the Biden administration’s review of TikTok and other issues related to Chinese technology companies, and that there are no proactive new steps in the pipelines at the time of the announcement. However, as the administration begins to set foreign policy on China, it appears likely that it does not deem the platform a risk to national security and overturns the decision to sell TikTok’s US operations.

A Symbolic Olive Branch?

The President will need to consider more than politics or ideology when forging China policy. To adequately serve American interests, President Biden must instead consider commercial interests and national security interests at the same time. The administration will face the ambitious responsibility of not only cracking down on China for unfair trade practices but also devising a national strategy that helps mold America’s economic position to better square up against emerging Chinese competition. A key component of this plan includes staffing the administration’s cabinet with officials who have been known to take hard stances on China, including Secretary of State Antony J. Blinken and US Trade Representative Katherine Tai. Still, the cabinet recognizes the potential for cooperation with China on mutually beneficial issues like the coronavirus pandemic and climate change, and the reversal of various low cost Trump-era regulations like the TikTok ban could represent an act of goodwill towards the Chinese government.

In the complex sphere of US-China politics, a reversal on the decision to require a TikTok selloff could represent one of two intentions. The first, though relatively unlikely given the current rift between US and Chinese officials, is one of an olive branch. By reversing policies deemed low cost to the US but high impact to China, the Biden administration could be priming the stage for more advanced discussions on matters of higher significance. Alternatively, it could simply indicate an overall shift away from Trump’s tit-for-tat approach to China in US foreign policy. For example, when Beijing booted American journalists from China, Trump responded by expelling Chinese journalists in the States. When Washington enacted a 15% tariff on US$110 billion of Chinese products in September 2019, China responded by imposing retaliatory tariffs on oil, soybeans, and other American exports. Instead of perpetuating scuffles like these, the Biden administration is likely seeking to focus on wholesale reforms negotiated both bilaterally and multilaterally through international organizations.

TikTok’s Other Options

Alternatively, there are other possibilities for TikTok’s future in the US. On one hand, it is plausible that Bytedance could stand to benefit from going through with the deal. As it stands, the largest concern threatening TikTok’s presence in the US stems from the potential for its data to be accessed by the Chinese government. However, if Bytedance and its board were to continue with the TikTok-Oracle deal after a thorough review by the White House and the Committee on Foreign Investment in the US (CFIUS), the company could eliminate any lingering security concerns around the TikTok platform going forward. This would inevitably hand control of its US user base over to Oracle, but allow TikTok as an entity to minimize the political risk of its other – both current and future – US-based operations.

Another possibility would be to make a deal with the CFIUS in which the company approaches a third party to manage all its US data – thus paving the way to maintain full ownership over TikTok’s US operations. Like the first option, this would appeal to the US government’s main concern with the platform regarding data safety. TikTok has repeatedly maintained that its ownership by the Chinese-run Bytedance does not pose a threat to US national security, as its user data is stored on servers outside of China with the main data centers in the US and Singapore. Still, with the administration and the National Security Council developing a comprehensive plan over the coming months to secure US data from a wide range of potential threats, Chinese apps like TikTok may have to submit to further regulatory concessions and increase transparency with the US government in order to continue operations within the country.

Regardless of whichever direction TikTok chooses, it is clear that the Biden administration’s actions over the coming months will set the tone for the future operational landscape of Chinese companies in the US. Pressured by opponents to maintain the aggressive policies of his predecessor, President Biden is expected to formulate a China strategy that puts American interests first and strengthens US competitiveness in the global market. While he maintains that his administration will take a different path than Trump, there is no doubt that heated competition is on the horizon – and TikTok may find itself at the forefront of battle.

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