President ***** is reportedly expected to issue an order compelling social media app TikTok to sell its US operations. | Anna Moneymaker/Getty Images
***** told reporters he plans to ban TikTok in the US, but such a move would likely face legal and technical challenges.
Update, August 1:
The ***** administration said it plans to ban TikTok, the wildly popular social media app that’s best known as a place for teens to post short videos, amid mounting national security concerns about the app’s relationship with the Chinese government.
On Friday evening, ***** told reporters on Air Force one, “as far as TikTok is concerned, we’re banning them from the United States,” saying he would do so using emergency economic powers or an executive order. It’s unclear exactly how ***** plans to enforce the ban — it would likely face serious legal and technical challenges.
According to a report earlier on Friday from Bloomberg, President ***** was considering signing an order compelling TikTok’s parent company, Chinese-based ByteDance, to sell its US operations. Some were floating Microsoft as a potential buyer. But on Friday evening, ***** told reporters he was against such a deal — which, according to the Wall Street Journal, has stalled Microsoft’s negotiations to purchase TikTok.
US Treasury Secretary Steven Mnuchin confirmed that the app was under government review for national security reasons on Wednesday, and that a recommendation would come by the end of the week. A government decision that bans TikTok or forces its parent company to sell it would be a game changer for the social media industry and would threaten to disrupt the app’s extraordinary rise in popularity with its some 80 million users in the US. And for established US social media giants Facebook and Google, the decision could significantly weaken their fiercest new competitor.
For months, ***** and other politicians have raised concerns about TikTok as a potential national security threat, worrying that the company could censor content or access user data at the behest of the Chinese Communist Party. TikTok has denied taking orders from the Chinese government to moderate content, and said it maintains all of its American user data outside of China, in either the US or Singapore. But reports last year indicated that TikTok was seemingly censoring content related to the Hong Kong protests, as well as other topics that are controversial with the Chinese government like Tiananmen Square and Tibetan independence. These reports have fueled US government suspicions, particularly as China has been expanding its surveillance state in recent years and US-China diplomatic relations have cooled.
Republicans have escalated their attacks on TikTok this summer, with some bipartisan support from Democrats as well. On Thursday, Sens. Richard Blumenthal (D-CT) and Josh Hawley (R-MO) sent a letter to the Justice Department demanding that the agency open an investigation into TikTok and Zoom over reported violations of “Americans’ civil liberties” and national security concerns about relationships between these companies and the People’s Republic of China. This followed statements in July from ***** and US Secretary of State Mike Pompeo, who both said the ***** administration was considering banning TikTok altogether.
A forced ban or sale of TikTok could have negative consequences beyond the people running TikTok, too. The move threatens to jeopardize the success of an app that’s had a meteoric rise from a relative underdog to one of the most downloaded apps in the world. And since TikTok is one of the only recent social media startups to compete with tech giants like Facebook, weakening TikTok could further reinforce what many argue is the monopolistic nature of the US tech economy.
“While we do not comment on rumors or speculation, we are confident in the long-term success of TikTok,” a spokesperson for TikTok told Recode, adding that the company is “committed to protecting their privacy and safety as we continue working to bring joy to families and meaningful careers to those who create on our platform.”
Here’s a breakdown of what’s going on and what’s expected next.
How this would work
You may be asking how ***** can force a company as popular as TikTok to sell off. The answer is complicated and bureaucratic.
If what’s being reported is true, ***** would issue the order for ByteDance to divest from TikTok through the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews foreign acquisitions and investments in US businesses that can threaten national security. The committee, which is chaired by Mnuchin, has the power to block or reverse mergers and acquisitions involving US and foreign companies.
Increasingly, the agency has been exercising its authority over foreign-owned tech companies operating in the US. Last year, CFIUS helped block one of the biggest deals in tech history, after ***** followed its recommendations to stop Singapore-based Broadcom to halt its acquisition of the US semiconductor company Qualcomm. The committee also forced Chinese owners to divest from the dating app Grindr and the health startup PatientsLikeMe.
But as Brookings fellow Geoffrey Gertz has written, tech companies weren’t always the target of CFIUS. In the past, the committee “tended to focus on companies with military or intelligence connections,” but more recently, personal data and high-tech intellectual property are of greater concern.
Last year, CFIUS started investigating ByteDance, which had purchased the Chinese-owned lip-sync video platform Musical.ly in 2017 and then rebranded and launched a similar app in the US under the name TikTok. When that investigation comes to a close, the committee’s recommendations will reportedly lead to *****’s order for ByteDance to sell TikTok or divest its US operations.
It’s unclear how CFIUS would enforce a potential unwinding of ByteDance and TikTok, but last year, the committee issued a $1 million fine to an undisclosed company for not following through on a mitigation agreement, its first penalty of that kind.
What comes next
If ***** decides to order ByteDance to divest in it, that doesn’t mean TikTok as we know it will simply shut down in the US. TikTok is a valuable brand in a lucrative industry. Instead, the company behind the app will likely change ownership.
If TikTok is compelled to sell its US operations, it needs to find a buyer. And while tech giants like Facebook or Google might otherwise jump at the chance to buy a fierce rival, the current antitrust scrutiny they face could make it difficult for them to do so. Which is where Microsoft may come in.
Unlike the other major tech companies, Microsoft does not have a major stake in the social media space, which could put regulators at ease, making the deal more likely to get approved. Then again, Microsoft is a dinosaur by tech company standards, and its involvement could be seen as a kiss of death for TikTok, the ingenue of social media.
But if Microsoft runs it well, TikTok could continue to grow, and with the backing of a major US tech company, it might more seriously take on other social media companies, including Facebook. And Microsoft is by no means the only option — other firms could try to buy TikTok.
It’s too soon to say who exactly will end up buying TikTok’s US operations. In the meantime, there are plenty of Clippy jokes to make.
Update August 1 3:10 pm PT: This article has been updated to include a statement from President ***** and new reporting about potential government action against TikTok.
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via Vox – Recode