As Trump’s proposed deadline for US businesses to cut ties with the popular Chinese apps TikTok and WeChat is fast approaching, tensions among the two economic superpowers are rising to a fever pitch.
In the past few weeks, it seems as if the United States has done all that was in its might to make way for an internal acquisition of TikTok’s US operations. It almost succeeded, until recently, when China started clapping back with wildcards of their own, which eventually resulted in a surprise move by ByteDance that has turned its back on Microsoft at the last moment.
Reuters reported on Friday that Chinese officials think succumbing to pressure from the US to sell TikTok would make both, ByteDance and China, look weak in front of their most salient rival, in all senses of the word. This staunch opposition implies that at least some members of the Chinese government believe letting go of the US market altogether would be a better option for ByteDance.
China’s retaliation to the US’ somewhat dramatic and underhanded tactics has been sufficiently strategic so far, which the article will touch upon in the next few sections. China’s foreign ministry has also not minced its words in expressing its disapproval of how this situation has been panning out. Recently, a spokesperson for the foreign ministry of China was quoted saying that “the tricks of economic bullying and political manipulation that the US played on non-American companies are tantamount to coercive robbery.” Zhao Lijian, another spokesperson for the ministry, also attacked the US’ misuse of the idea of national security in a recent press briefing.
News of China’s suggested willingness to let go of the US market altogether shows that they will not go down without a fight. The United States is TikTok’s third-largest market, after India, where the app was banned back in June, and its domestic consumer base. However, according to a direct statement by ByteDance addressed to Reuters, they still haven’t come under any pressure or suggestions from their own government to cancel the US acquisition. Nonetheless, ByteDance has its hands tied, as it is busy trying to maintain a favourable image in the eyes of both these governments and markets. The latest decision to have Oracle by its side instead of Microsoft is being seen as an effort to achieve the same.
However, the influence of Oracle Tiktok deal in the US on authorities are yet not known. But if the partnership agreement fails to get the ban on TikTok revoked, China would not mind flushing billions of dollars down the drain by killing TikTok in the US for now.
China’s New Export Laws and ByteDance’s Promised Compliance
Perhaps the most powerful ammunition China has launched is the recent update to its export policies.
Previously, China’s export control policy did not include artificial intelligence features that apps like TikTok use. But as the US deadline approached, this statute, which hadn’t been revised in 12 years, underwent a reconstruction to impose controls over the export of AI licenses. This development instantly changed the course and dynamic of the ongoing tiff between the US and China.
Through this update, China can withhold sharing the main algorithm of TikTok with any potential overseas buyers, as ByteDance comes within the jurisdiction of this law. ByteDance has also promised to strictly comply with these laws, whether that might be because they want to retain TikTok or because they have no other option can be left to the speculation of those observing the matter.
At the same time, TikTok is by no means letting itself get swept away in the everchanging currents of this issue.
Microsoft Out, But Can Oracle Help?
Until yesterday, analysts and media worldwide were busy considering the implications of all the recent developments related to TikTok acquisition by the duo that was most likely to acquire TikTok’s US operations if the deal does go through – Microsoft and Walmart.
The Monday morning, however, came with a surprise when Microsoft announced that ByteDance has refused to sell TikTok.
ByteDance turned their back on Microsoft and decided to the side by Oracle with a ‘trusted partnership agreement‘. The detail of the agreement is yet to be known, but experts believe that given the ongoing circumstances ByteDance see that an agreement with Oracle could be a better option than selling TikTok in the US to Microsoft. This way Bytedance has tried to kill two birds with one stone.
At one side, with such agreement, ByteDance honours China’s adamant stand on TikTok sales, on the other hand, it could bring TikTok back to life in the US by having Oracle by its side. ByteDance is apparently betting on the relationship between Oracle’s CEO Larry Ellison and the US President Donald Trump. Without selling a controlling stake to a US company ByteDance may up having the last laugh as the deal may satisfy both China and the US.
Despite all the twist that ByteDance has bought to the much-talked acquisition deal, it’s not clear how much China, as well as US authorities, value it. Experts believe that if the US agrees to revoke the ban on TikTok based on the agreement with Oracle, China is unlikely to make any objection. In fact, it would be seen as a strategic win of China over the US, which is hell-bent on ByteDance selling US operations to a US company.
However, if the move fails to satisfies the authorities of either country ByteDance would be left with no other options but to retreat from the US under the pressure from China. And, this would just not be the loss for ByteDance alone, it would mean a huge loss for Microsoft and Oracle, which have the public trust, technological sophistication, and infrastructure to manage a new product and maintain its success.
A Lawsuit to Hold its Own
Following Trump’s order back in August, TikTok launched a lawsuit of its own against his administration, suing them for issuing the executive order without adequate evidence and following proper procedure.
In defense of itself, TikTok listed down the efforts it undertook to gain the American administration’s trust. These included repeated guarantees about US nationals’ data being stored in servers located in US and Singapore, having barriers set up between US users’ data and the data of users from other countries, and a callback to the initial acquisition of Musical.ly (which later become TikTok) from America, wherein all security practices were confirmed to be in accordance with US guidelines.
At the same time, TikTok has made considerable efforts to hire as many American executives to their US offices, including CEO Kevin Mayer. TikTok has also been considering shifting the main headquarters to a location outside of China, one of which is in the US, and had previously put out multiple ads to hire engineers in the US.
With this, it is clear that TikTok has tried both offense and defense against the Trump administration.
TikTok and ByteDance Prepared for the Worst Case Scenario
The involvement of the Chinese government naturally made TikTok’s imminent deal with the US complicated.
Recent reports intimate that TikTok is prepared for a possible retreat from the United States, in case if the partnership agreement with the Oracle doesn’t appease the authorities and the ban in the US doesn’t get revoked.
On Thursday, Trump shot down all possibilities of the deadline for TikTok’s US acquisition to be extended, despite China’s update to its export policies. TikTok employees in the US have also reportedly been asked to stay on guard and prepare for a possible closure of the company.
ByteDance seems to already have moved on to the next phase of its expansion strategy as the company is now strengthening its base in Singapore to establish a more prominent presence in Asian countries after losing the Indian market and the possible loss of the US market. More than 200 ByteDance job postings have been made so far in Singapore.
The Stakes are High for the US as Well
It seems the US does not have any aggressor privileges in this matter. The current tug of war between the two countries makes the future of this fiasco very unclear.
Thousands of Americans will lose jobs in the middle of a pandemic if the threatened ban comes into effect. This will not only include TikTok employees, but also many influencers who relied on TikTok as a source of income. At the same time, many brands will lose a valuable social media marketing channel which greatly appeals to the current generation of young shoppers.
However, there will be more long-term trade-related consequences for US tech. Foreign companies are bound to lose their faith in America as the land of opportunities after this crackdown on Chinese apps. Conversely, it will become difficult for American developers to acquire international markets and permissions for their products.
Experts and competition watchdogs have accused US tech giants and the government of squashing all competitors for years.
Given TikTok’s massive growth which took place only in a matter of 2 to 3 years, it’s no surprise that the US wants to put reins on its activity and influence while reaping the harvest of its benefits.
The US knows China is a very strong contender in terms of technological prowess and is aware of the threat it poses to the technological hegemony the former enjoys at the moment. If China overtakes this supremacy, it would mean massive economic and soft power losses for the United States.
It is also worth mentioning that US tech companies aren’t clear from accusations of sharing user data with the government. On the other hand, TikTok’s data collection seems to be more or less similar to that of other social media apps.
All said and done, the situation, especially after ByteDance killing all the possibilities related to selling its US operations to Microsoft, has become very interesting. The ball is in the US court now and TikTok’s future in the US is now completely depends on how Trump administration plays it. Can Oracle help TikTok to avoid certain death in the US? It would be interesting to see.
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