America’s TikTok ban: digital protectionism

Will the ban backfire?

by Matthew Prescod

During his four years in office, President Trump attracted ire for the unilateral imposition of tariffs and export restrictions, with many accusing him of undermining global trade norms. Unfortunately, President Biden continued along a similar path, doubling down with new tariffs, as recently as May. Whilst economic liberals have rightly exposed the shortcomings of Washington’s protectionist convulsions, the recent handling of TikTok represents a form of “digital protectionism” which is no less deserving of scrutiny.

For those who have been living under a boulder, TikTok is a social media platform that provides users with a personalised feed of short-form videos, tailored to individual tastes via algorithms. It has captured over a billion people world-wide. Legislators in the US are not itching to proscribe TikTok because they are fearful that the youth of today may eschew books for pimple-popping compilations. Instead, they are convinced it poses a threat to national security.

Currently, TikTok is ultimately owned by the Chinese technology company ByteDance Limited, which is headquartered in Beijing and incorporated in the Cayman Islands. According to public proclamations, the firm is 60% owned by international investors, has American board members, and only 1% of a China-based subsidiary is owned by the Chinese state. Lacking actual evidence that TikTok’s owners have been acting maliciously, the platform’s critics have been primarily concerned with the implications of China’s 2017 National Intelligence Law, which stipulates that all organisations and citizens must cooperate with national intelligence efforts. As a result of this legislation, if ByteDance were hypothetically called upon to hand over American user data to the Chinese government, they would have no choice but to comply, regardless of US and EU data protection requirements.

Consequently, Congress cooked up the ‘Protecting Americans from Foreign Adversary Controlled Applications Act’, and President Biden signed it into law in April. The PAFACAA mandates that any social networking platform designated a ‘foreign adversary controlled application’ by authorities would face a ban unless sold and no longer considered so. The fundamental problem with the Act is that it incentivises Chinese policymakers to do what American lawmakers feared all along.

Prior to US lawmakers acting, China had good reason to play nice and leave ByteDance alone, as the potential costs of compelling the firm to hand over user data (namely, the prospect of a ban) undoubtedly dwarfed the benefits of having access to that data. If ByteDance were dragooned into handing over American user data and it came to light, China would pay a high economic penalty. Over $16bn of US revenue could evaporate. There would be a ripple effect across the tech sector, as other Chinese firms would now also be perceived as an espionage risk. Unprecedented scrutiny and further bans could follow. But now, with the legislation in place, China is going to say goodbye to ByteDance’s US revenue regardless. With the costs attached to taking the data now lower, the worst-case scenario for policymakers in Washington is now more likely.

It is true that, even with the legislation in place, taking the data could hurt China elsewhere. For instance, Europe has around 150 million TikTok users, and it is highly likely that other countries would fence out the platform from their markets if it were found out to have strong-armed American user data from ByteDance. However, it is still the case that the US legislation has altered the risk-reward balance for Chinese policymakers. ByteDance’s American revenues are set to vanish now the platform is inevitably going to be banned, or sold, leaving the economic deterrent weakened. If the personal data of US users – name, age, IP address, location, viewing history, and videos that could be used to train deepfake algorithms – is as valuable as some suggest, the incentive for China to take the risk has increased.

So, the strategy is dubious. But what about the practicality of the ban? It is highly questionable whether Chinese policymakers would allow the sale of TikTok to an American entity to go through. Concerns about fair competition would certainly be raised, along with the age-old national security card. Beijing is unlikely to allow a precedent to be set permitting the expropriation of a domestic firm’s technology. Since the ban first became a prospect under Trump, China has updated its export control rules to cover sensitive technologies, which would likely apply to TikTok’s personalised recommendation engine. Equally, Beijing will be mindful that acquiescence would not play well with a domestic audience. Although scope for like-for-like retaliation is limited, as major American social media firms are already banned in China, there is the potential for further curtailing major US multinationals’ ability to operate within the mainland, or the outright escalation of tariffs in the ongoing trade war.

Amidst all this, we should not forget that for a growing number of creatives, TikTok provides an income, and for countless businesses and entrepreneurs, a place to market and sell their goods and services. According to the firm’s own numbers, more than seven million American small businesses use the platform. If TikTok ends up banned, this will cause immeasurable disruption. For consumers, they risk losing access to a widely popular platform for self-expression, or being lumped with a worse product if it is sold on. It is hard to conceive that the software engineers and corporate executives behind TikTok can just be replaced without a measurable impact on the operation and growth of the platform.

The approach taken by US lawmakers also sets a dangerous precedent. Future administrations could leverage the PAFACAA to target foreign-owned companies arbitrarily, based on shifting political headwinds. If Trump were to return to the White House, this is entirely foreseeable. There is also a fundamental question of fairness. ByteDance receiving a high price for the sale of its platform is not the same as receiving a fair price. After all, US policymakers have set the time frame for a sale. For those nations who hold an uncharitable interpretation of America’s intentions, this is nothing more than economic banditry – an audacious expropriation that undermines the US’s reputation as a fair and principled player in the global economy.

At its core, the TikTok Ban is reflective of a reactionary approach to policy making. Whilst most would recognise that it is sometimes necessary to trade off economic gains for national security, careless legislative responses risk leading to counterproductive outcomes, like incentivising the exact type of behaviour policymakers wish to avoid.