Trump Suffers Another Loss in the TikTok Showdown With China

(Bloomberg Businessweek) -- In the monthslong standoff between the U.S. and Beijing over TikTok, China has emerged as the clear winner..If the proposal President Trump blessed holds, he’ll get almost none of what he demanded last month when he threatened to ban the popular Chinese-owned video app over national security concerns if it wasn’t sold to an American owner. In short: There likely won’t be a sale. No U.S. government cut of the transaction. And, according to security and privacy advocates, no satisfying resolution to address the risk that TikTok could funnel American data to the Chinese government or use the social media platform to project propaganda worldwide..Instead, the deal being negotiated by TikTok parent ByteDance Ltd. and founder Zhang Yiming avoids a sale altogether. Successfully calling Trump’s bluff to shut down China’s most prized tech companies, ByteDance says its proposal leaves it with 80% ownership over what’s now being dubbed TikTok Global. New minority investors Walmart Inc. and Oracle Corp. will take a stake of as much as 20%, the companies said in a joint statement..ByteDance also stands to scoop up billions of dollars through a planned initial public offering next year for TikTok, which has pledged to create 25,000 U.S. jobs, set up an education fund, and generate $5 billion in U.S. tax dollars. More important in the battle for global tech supremacy, the TikTok proposal would allow China to maintain its grip on the powerful technology and algorithms that decide which videos are shown to the 100 million American users of the app, which has been downloaded more than 2 billion times globally..“It’s hard to see how the biggest winner out of all of this isn’t Beijing, because Trump effectively got nothing that he asked for,” says Fergus Ryan, an analyst at the Australian Strategic Policy Institute who co-authored a report documenting censorship and information controls at TikTok, claims the company denies..Experts say the U.S. government’s handling of the TikTok saga plays right into the ethos of cyber sovereignty that China has been pushing for decades and normalizes the authoritarian notion of a divided internet subject to the changing whims and political priorities of the country’s rulers. Trump’s “meddling in private business just validates the way China does business and weakens the U.S. hand in the rest of the world,” says Kirsten Martin, a technology ethics professor at the University of Notre Dame. “It makes it that much harder for the U.S. to take a stand against China and Russia in the future, while leaving real privacy and national security issues unresolved.”.For decades, U.S. technology policy embraced a more idealistic view of the internet as a way to tear down geopolitical barriers and champion freedom among oppressive governments. American lawmakers and tech entrepreneurs have lamented Beijing’s refusal to allow Facebook Inc., Google, and other tech giants to operate in China, says retired Brigadier General Greg Touhill, as well as President Xi Jinping’s use of homegrown businesses such as Tencent Holdings Ltd. as extensions of surveillance and propaganda operations. The TikTok deal could add legitimacy to China’s isolationist behavior, says Touhill, who was the first federal chief information security officer in the Obama administration and served under six presidents..But even with a deal approved in concept by Trump, the U.S. and China remain atodds over who would control TikTok Global. Trump has said he won’t sign off on an agreement in which TikTok isn’t under U.S. control, a stipulation that proponents of the deal tried to satisfy by including existing American shareholders’ passive stakes in TikTok’s parent company in the proposal’s ownership tallies, according to people familiar with the negotiations. Meanwhile, ByteDance released a statement in Chinese on its local news reader saying it wanted to dispel any rumors and reassure stakeholders that the company would retain an 80% stake in TikTok..“Something’s gotta give, because you can’t have 80% and 0% at the same time,” says Mark Shmulik, an analyst at AB Bernstein. Concerns over privacy and security remain in a proposal that gives Oracle access to source code and algorithms but allows ByteDance to maintain control over the technology. Critics also question what incentive Oracle has to report wrongdoing at a company in which it owns a 12.5% stake and from which it benefits financially..TikTok’s fate is anything but sealed given the propensity of Trump to change his mind and deliberations among stakeholders. China’s state media is already casting doubt about the deal getting government approval. And it’s unclear if any resolution will come before the U.S. presidential election on Nov. 3. But the damage to America’s tech policy and global standing has been done, says Jennifer Daskal, a professor in the Tech, Law & Security Program at American University Washington College of Law..“Unilaterally threatening the ability for a particular app to work in the U.S. based on broad, sweeping claims of national security without offering a solution that deals with the purported claims in any meaningful way creates a dangerous precedent for the U.S. and globally,” Daskal says. “Now any country will be able to justify kicking out apps or companies based on assertions of national security concerns without providing real meaningful basis for those concerns.” Read next: Facebook Needs Trump Even More Than Trump Needs Facebook.©2020 Bloomberg L.P.

Trump Suffers Another Loss in the TikTok Showdown With China

In short: There likely won’t be a Tiktok sale. No U.S. government cut of the transaction.

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