TikTok Ban: China Has The Power To Block Sale, Gains Leverage Over Washington

Last week, the House of Representatives moved forward on a bill that could ban TikTok in the U.S. unless it is sold by its owner ByteDance Ltd.

The move has already faced rejection from Beijing and is risking adding yet another complication to the already unstable relationship between the world's two largest economies.

The TikTok Bill, Explained

TikTok, the popular short-video social media app used by more than 170 million Americans is facing scrutiny in Congress over concerns that ByteDance, its Chinese parent company, could comply with the Chinese government in actions liable to undermine national security.

The bill cleared the House with ease on Wednesday, but its passage received strong criticism from TikTok CEO Shou Zi Chew, who warned that banning TikTok could put “more than 300,000 jobs” in the U.S. at risk.

If the bill passes in the Senate, ByteDance will be given the option to sell its U.S. operations or face a shutdown. In recent days, several prospective buyers came out to announce their interest, including former Treasury Secretary Steven Mnuchin and former Activision Blizzard CEO Bobby Kotick.

Analysts expect competitor companies in the social media space to benefit in the event of a TikTok ban. These include Meta Platforms Inc META and Snap Inc SNAP, as U.S. users would naturally move to other platforms offering similar products.

In a recent poll, 38% of Benzinga users responded that they're most likely to migrate to Instagram, owned by Meta, in the event of a ban, while 26% said they would move to X, formerly known as Twitter.

ETFs with heavy exposure to Meta and other U.S.-listed social media apps include Communication Services Select Sector SPDR Fund XLC, Invesco QQQ Trust Series 1 QQQ and Vanguard Growth Index Fund ETF VUG.

What The Bill Means For U.S.-China Relations

A ban on TikTok, which has been talked about in Washington for years, could have vast consequences for U.S.-China relations. The issue was first brought forth in 2020 by former President Donald Trump, who raised the fact that a Chinese-owned company could hand over U.S. user data to the Chinese government or even be infiltrated by government officials who could manipulate the content algorithms to spread misinformation.

According to OpenSecrets, ByteDance is actively lobbying to fight restrictions in U.S. courts and in Congress, having spent north of $8.7 million in these efforts in 2023 alone, 77% more than the previous year.

Also read: China Using TikTok To Interfere In US Elections? National Intelligence Chief Raises Alarm

Trump issued an executive order in 2020 to force a sale of the company's U.S. operations, but it was blocked in court.

Surprisingly, Trump has come out to say he's against the ban now, as he sees it benefiting Meta, a company that is in competition with Truth Social, the social media platform he owns. Trump has blamed Meta for "cheating" in the 2020 presidential election, which he lost.

The new piece of legislation comes at a time when U.S.-China tensions are rising. The TikTok bill can be read within the context of a broader strategy to limit Chinese control over key strategic technologies.

The U.S. has already set out measures to slowing China's development of AI systems by limiting its access to high-end semiconductors, as well as preventing Chinese electric vehicles from entering the U.S. market.

Biden has recently referred to technology aboard Chinese-made EVs as a "security threat."

Taiwan, a holder of key tech manufacturing infrastructure, would be at the center of any potential military escalations, as its territory is claimed by China, while remaining a U.S. strategic ally.

Does China Have The Upper Hand?

Last Thursday, a spokesman for China's Ministry of Commerce signaled that the Chinese government would interfere with an effort to divest TikTok, forcing the app to forgo its U.S. user base before being sold, as reported by the WSJ.

Chinese authorities have previously stated that any sale of TikTok to U.S. buyers would need to be approved by the Chinese government as it would signify the sale of Chinese technology. Content-recommendation algorithms, like the ones behind TikTok's massive success, are within China's export-control list, CNBC reports.

A TikTok ban in the U.S., given its large user base, would likely face significant public backlash, potentially allowing China to use its influence to obstruct the sale and compel the U.S. government to seek alternative solutions.

Now read: Is Congress Causing TikTok’s User Growth To Stall?

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