Commotion around the banning of short-form video platform TikTok in the US has piqued the interest of many. Project Texas, a US$1.5 billion relocation of US user data to US servers aimed at building trust with the American government and persons, has so far proven to be insufficient at quelling the distress among US lawmakers. Since appearing before the House Energy and Commerce Committee in the U.S., TikTok CEO Shou Zi Chew has garnered much fandom. Regardless of whether one is a fervent fan of the app or its popular executive, stakeholders will certainly be closely watching at how things unravel following the Singaporean’s faceoff with U.S. legislators.
National security was cited as the chief reason for outlawing TikTok. Its parent company, ByteDance, previously sold stakes to entities related to the Chinese government, effectively giving the Chinese Community Party a board seat. This fanned uneasiness about ByteDance potentially being strong-armed into handing over user information to the CCP for sensitive operations. Concerns over data privacy and espionage were also echoed in other parts of the world as more countries impose a partial or full prohibition of TikTok usage.
In fact, attempts to ban the social media app on American soil has been ongoing since mid-2020. What then prompted the latest scrutiny? One answer may lie in the lobbying efforts by large tech competitors. Facebook’s parent company, Meta Platforms, Inc., (NASDAQ: META), formerly launched a campaign aimed at taking down TikTok. Together with Google’s ultimate parent, Alphabet Inc. (NASDAQ: GOOGL), the two technology conglomerates were reported to have funded authorities that pressured ByteDance to sell TikTok. Another plausibility could be the large viewership by Chinese nationals who closely followed the hearing due to already frayed U.S.-China relations, propagated by domestic criticisms of Congress. Collectively, these reasons shone a bright spotlight over the hearing.
The first amendment and burden of proof
There are multiple scenarios that can transpire following the uproar. To begin, a full ban may prove to be extremely challenging as it directly conflicts with the First Amendment which protects freedom of speech. Justifying the ban requires demonstration that there exists no narrower alternative to address U.S. privacy and security concerns. This imposes a substantial burden of proof which historically led to a revocation of Trump’s Executive Orders.
Furthermore, a series of bills aimed at the removal of TikTok was recently introduced. These compose of the House of Representative’s DATA Act that amends the International Emergency Economic Powers Act (IEEPA) which stymied the Trump Administration’s restrictions on TikTok back in 2020. The bill seeks to exclude sensitive personal data from materials exempt from regulation under IEEPA, thereby prohibiting any attempted transfers of said data by TikTok to China. The Senate’s RESTRICT Act is similarly motivated but extends its scope to information and communications technology related to ‘foreign adversary’ countries including China.
IPO or sale?
A more compelling argument may be using the Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews foreign investments for risks pertaining to national security. This essentially vests President Biden with the ultimate authority to unravel ByteDance’s 2017 acquisition of Musical.ly and subsequent merger with TikTok. A forced divestiture of TikTok from ByteDance involves two outcomes, namely a public listing or a sale of the wildly popular app.
An initial public offering (IPO) forces greater transparency and enables American investors to own a direct stake in the company. However, past IPO plans were flimsy at best and there is no official revisitation of a U.S. listing thus far. The latter option of a sale is certainly possible but not without consequence. China’s Ministry of Commerce explicitly stated their resolute opposition towards a forced sale, citing that doing so will seriously damage investors’ confidence. Clearly, going down the CFIUS way almost guarantees regulatory retaliation from China, exacerbating the already strained relations between the two economic superpowers.
Alienating Gen Z voters
TikTok has about 150 million regular users in the U.S. Polling revealed that while most of those surveyed favours a ban, the proportion of people against a ban is disproportionately skewed towards Gen Z and Millennials. By comparison, 65% of respondents aged 45 to 64 prefer a ban, a sentiment shared by 83% of those aged 65 and above. This could be due to the younger demographic constituting the bulk of TikTok content creators. There are approximately five million businesses that use TikTok, and plenty other individuals depend on the app to make ends meets. The Creator Fund that remunerates content creators based on their viewership is a testament to how a ban can hurt the earnings of creators not just within the US but also worldwide.
Taking away the freedom of expression and jeopardising livelihoods may have domestic political ramifications too. Ironically, U.S. politicians campaigned with the app during the 2022 midterm elections. Their courtship of Gen Z voters resulted in the second highest attendance of youth in three decades. Dissenters may argue there are other social media platforms such as Snap Inc. (NYSE: SNAP) to engage young voters. However, the issue lies not in the lack of such mediums but how negative perceptions around stifling their voices may alienate Gen Z voters.
The fifth perspective
Nobody can predict TikTok’s eventuality with certainty. Simply highlighting reasons that make a full ban unfavourable does not prevent it. However, it may shed light on other possibilities. Perhaps Project Texas can be further refined to assuage concerns. After all, the initiative is far from complete. Maybe the app will be phased out gradually, starting with certain states or personnel.
Even if an immediate full ban comes into effect, precedents elsewhere in the world showed just how quickly consumers and investors move on. With so many tech titans in the U.S., another social media app could just be waiting in the wings to take TikTok’s place.
