Fri. Oct 30th, 2020

James Crabtree is an associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of “The Billionaire Raj.”

President Xi Jinping has so far not said how he will respond to Donald Trump’s TikTok deal.

But China’s press gives a fair sense of where things are heading. “Say ‘No!’ to U.S. robbery of TikTok,” read one headline in the nationalist Global Times. China Daily, generally more sober in tone, described the U.S. president’s plan as “a dirty and underhanded trick.”

For once China’s media has a point. Trump’s deal is a compromise only in the sense that it ought to satisfy no one. There are few reasons Xi should let it go ahead, and many more why Americans should not support it either.

Rather than forcing a sale, the plan sets up a new U.S.-based company, TikTok Global. This will run TikTok’s operations while being ring-fenced from ByteDance, the app’s Chinese parent. American software group Oracle, a minority investor in the new company, acts as “trusted tech partner.” TikTok denies it sends data on users back to China. But Oracle founder Larry Ellison’s role is to assuage the concerns of those in the U.S. who worry that TikTok would have little choice but to do so, were Chinese authorities to demand data access anyway.

The problems begin with confusion over control. At first ByteDance said that it would own 80% of the new entity. Oracle disagrees, saying it and a clutch of U.S. investors have a combined majority stake. Under the terms of an executive order issued by Trump in August, the various parties have until early November to resolve this, after which time the app will be banned. Meantime, on Sunday a U.S. federal judge handed TikTok a last-minute reprieve by blocking moves to ban downloads of the app, just hours before an order had been due to take effect.

All this confusion explains Beijing’s shifting reaction. China’s media were supportive at first, when it looked as if Trump had given up on a forced sale and allowed ByteDance to keep control. Now that the Chinese group may be forced to hand over TikTok, their line has reversed.

Any rejection by Beijing would come with consequences. TikTok could simply be banned in the U.S., dealing a blow to ByteDance and its international ambitions. China’s moral case would of course be far stronger if its own regulators did not also ban and bully international players trying to operate in its own market. Even so, China would be perfectly justified in blocking what amounts to the shambolic, forced-nationalisation of one of its leading companies.

Whatever Beijing decides, there are plenty of reasons the deal is not in America’s interests either. For starters it is far from clear it solves the theoretical worries about data security that vex China’s critics on Capitol Hill, alongside some national security experts. What Oracle’s role as trusted tech partner means in practice is murky. This is especially so if ByteDance refuses to hand over the source code to its all-important algorithm, as seems likely.

The new arrangement also reeks of favoritism, given Oracle’s Ellison is a prominent Trump political donor. Worse, it involves seemingly random payoffs. “They are going to pay $5 billion into a fund for education so we can educate people as to the real history of our country,” Trump said of the deal’s signatories. ByteDance appeared nonplused, saying it knew nothing of the arrangement. The whole thing left the impression of a grimy political shakedown, with random sweeteners thrown in at the last minute to buy Trump’s approval.

Beyond this it is hard to see what Trump gains. Election year considerations could be at play, in that the U.S. president did not want to ban the app and risk a backlash. In trying to broker a deal, Treasury Secretary Steven Mnuchin at least was trying to protect U.S. investors in ByteDance from the threat of closure. But at a minimum it seems Trump’s team were not serious about national security threats in the first place, given their deal manages to address them at best only in part.

Whatever Trump’s reasoning, his arrangement creates a worrying global precedent. More than anything, the process under which it was reached resembles the kind of arbitrary, cyber-nationalist rule-making that the U.S. has long accused China of practicing. If the U.S. now plans to behave in this way, it sets a new norm other states will follow. The losers will be U.S. companies like Facebook and Google, who will face a likely upsurge in techno-nationalist rule-making, especially in Asia. Indeed this has already begun to happen, with respected technology figures like Vivek Wadhwa already calling for Facebook’s Indian operations to be nationalized and handed over to an Indian company.

Vivek Wadhwa is calling for Facebook’s Indian operations to be nationalized and handed over to an Indian company.   © Reuters

It may be that over the coming weeks, ByteDance, Oracle and the U.S. administration can find further compromises to make their deal work. Whatever happens to it, the baffling thing is that Trump had a far better option on the table, namely to let the formal investigation into TikTok run its course via the Committee on Foreign Investment in the United States, or CFIUS, a government body that investigates the national security implications of major commercial transactions.

This may well have resulted in the forced sale of TikTok’s U.S. operations, but at least one that was properly justified, and where ByteDance could have received proper compensation for its asset. Instead the administration has created a highly-politicized dog’s breakfast of an arrangement that will only damage America’s reputation as a global leader in technology regulation. Much like the videos TikTok produces, it must be hoped Trump’s deal is short-lived.

By Bureau