Potential US Purchase of TikTok Could Signal Economic Leverage over China

By Jarren Buendia on August 14, 2020

Executive Summary:

According to multiple sources, US tech investors are trying to buy a majority stake in the currently Chinese-owned social media business, TikTok. This news comes off the heels of the White House’s announcement that President Trump is considering banning the app in the US in order to retaliate against China. The Navy had already banned the app from being installed on government-issued devices in December 2019, but amendments to the National Defense Authorization Act also banned the app from government devices (passed July 2020). Reasons cited for the app’s ban include concerns over US citizens’ data privacy, which then categorizes it as a national security issue. However, if TikTok became a US-based company, severing ties with China, it may remedy the security concerns. Thusly, if US investors succeed in acquiring a majority stake in TikTok, it possibly sheds light on a US-based campaign to exert economic leverage over China, through shaming the country until businesses decide to headquarter in the US.

Open Source Intelligence (OSINT) Details:

In December 2019, Reuters reported on the fact that the Navy has banned TikTok from being installed on government-issued devices (Pell & Wang, 2019). While that article did not specify why, the bulletin stated the app, “represented a cybersecurity threat,” and Pentagon spokesman, Lieutenant Colonel Uriah Orland, stated the ban was part of, “an effort to ‘address existing and emerging threats’” (Pell & Wang, 2019). According to more recent articles, the consensus appears to be that banning the app from government-issued devices is due to concerns that Chinese-based, TikTok, is sending US data to the Chinese government. According to Business Insider, the White House has launched more than 100 iterations of anti-TikTok ads, on both Facebook and Instagram, since mid-July (Leskin, 2020). These advertisements state that TikTok is spying on users by, “monitoring what is on your phone’s clipboard,” urges viewers to support a nationwide ban of the app, and indicates it is of Chinese origin, due to the lower banner stating, “WARNING: China is spying on you” (Leskin, 2020). In addition, President Trump has stated that banning TikTok was just one way he is considering to, “punish China over the coronavirus” (Hamilton, 2020).

This is not the first time the US government has pinned blame on China over cybersecurity concerns. Secretary of State, Mike Pompeo, stated that if the UK allowed Chinese-based company, Huawei, to have any part in the country’s 5G networking, there would be repercussions (Wintour, 2020). “[The] US would never permit its national security information to go across networks in which it did not have confidence” (Wintour, 2020). In February 2020, Reuters reported that the Department of Justice (DOJ) officially indicted four Chinese army members over the 2017 Equifax data breach incident (Chiacu & Bartz, 2020). Finally, the US directly named China as the culprit behind recent cyberattacks, meant to steal or disrupt COVID-19 research and development. “China is seeking valuable intellectual property and public health data through illicit means related to vaccines, treatments and testing” (Sanger & Perlroth, 2020).

Potential Impacts:

In short, TikTok has been banned by the Navy since December, and Congress made it official by amending it into the National Defense Authorization Act, because it is seen as a Chinese cybersecurity threat. President Trump has stated he is considering banning the app as one way to “punish China,” another public statement directly referring to China as a culprit. Whether or not these indictments and “punishments” amount to anything significant, at least in public knowledge, it has potentially swayed TikTok to move away from their Chinese roots. Amidst allegations that TikTok is Chinese spyware, the company has repeatedly stated that they have never given data to the Chinese government, and hired ex-Disney executive, Kevin Mayer, as CEO (Hamilton, 2020). TikTok was also banned in India in June, due to political tensions, and shortly thereafter, pulled out of Hong Kong (Helmore, 2020). With tensions rising between the US and China, as well as between India and China, it appears that TikTok may be looking for a new base of operations, which is where US tech investors come in. According to The Guardian, “Investors, led by the venture capital firms General Atlantic and Sequoia Capital, are reported to be in discussions with US regulators about an option to acquire the company […]” (Helmore, 2020). Top Trump economic adviser, Larry Kudlow, stated that while a final ban decision had not been decided at that time, TikTok, “could ‘pull out’ of the Chinese holding company and ‘operate as an independent American company’” (Helmore, 2020). So as tensions rise, TikTok finds itself caught in the middle. Either continuing to exist as a Chinese-based company, or perhaps bought out by US investors and becoming a US-based company.

Significance:

Whether it is the fact that TikTok has almost 1 billion users worldwide, or the fact that many government officials are concerned about national data security, moving to potentially buy TikTok out, is interesting. If the app is considered a cybersecurity threat, banning it would be the end of the story, in that regard. However, with a user base that large, and as active as it is, US investors could see potential reward in the purchasing risk. Owning TikTok, and having them be a US-based company, would allow for greater regulation, and would also be easier than instructing millions of US users to delete the app from their devices. However, with as much attention as TikTok has gotten recently, it may look bad if companies show interest in this particular organization. So why would US investors push to buy TikTok in the midst of the app being nationally banned? Perhaps investors want to buy the company specifically because it would be taking TikTok away from China. Between government allegations, indictments, and presidential statements towards China, public US announcements have been a battle of words. In this case, the US continues with Chinese allegations, but now it may have triggered a desire by a Chinese company to cross borders. China is an economic powerhouse, so for the US to exercise economic leverage through a company buyout, it potentially reveals a US end goal. Through political means, the US may be trying to wrestle businesses away from China, in order to acquire them for US purposes.

Sources:

“Mike Pompeo restates US opposition to Huawei access.” 30 Jan 2020. Retrieved From: theguardian.com/politics. Retrieved: 23 July 2020.

“TikTok: US investors reportedly keen to buy Chinese-owned app to avert Trump ban.” 23 July 2020. Retrieved: 22 July 2020. Retrieved From: https://www.theguardian.com/technology/2020/jul/23/tiktok-sale-us-investors-avoid-trump-china-ban

“Trump said he’s considering banning TikTok to punish China over the coronavirus. ”08 July 2020. Retrieved: 23 July 2020. Retrieve From: https://www.businessinsider.com/donald-trump-considering-banning-tiktok-2020-7

“The Trump campaign is running several anti-TikTok ads on Facebook and Instagram accusing the Chinese app of ‘spying on you.’” 18 July 2020. Retrieved: 23 July 2020. Retrieved From: https://www.businessinsider.com/trump-campaign-facebook-ads-anti-tiktok-spying-china-ban-2020-7?r=US&IR=T

“U.S. charges four Chinese military hackers in 2017 Equifax breach.” 10 Feb 2020. Retrieved: 22 July 2020. Retrieved From: https://www.reuters.com/article/us-usa-justice-cyber/u-s-charges-four-chinese-military-hackers-in-2017-equifax-breach-idUSKBN2041RT

“U.S. Navy bans TikTok from government-issued mobile devices.” 20 Dec 2019. Retrieved: 23 July 2020. Retrieved From: https://www.reuters.com/article/us-usa-tiktok-navy/u-s-navy-bans-tiktok-from-government-issued-mobile-devices-idUSKBN1YO2HU

“U.S. to Accuse China of Trying to Hack Vaccine Data, as Virus Redirects Cyberattacks.” 10 May 2020. Retrieved From: nytimes.com. Retrieved: 22 July 2020.