The Trump administration’s threat to ban the Chinese-owned short video app TikTok unless it is acquired by a U.S. company could spell trouble for other Chinese technology companies with global ambitions.
U.S. Secretary of State Mike Pompeo said on Wednesday that the U.S. wants to ban “untrusted” Chinese-owned apps and impose new restrictions on Chinese cloud providers and handset makers, saying they pose data privacy and national security risks. Pompeo specifically named TikTok, which is owned by Beijing-based tech firm ByteDance Ltd, and WeChat, the popular Tencent Holdings-owned social messaging platform.
Executive orders Trump signed Thursday seemed to make good on Pompeo’s warnings. They take effect in 45 days and ban any U.S. firm or person from transacting with TikTok’s parent ByteDance or WeChat.
Microsoft Corp is currently in talks to buy TikTok, a move that could appease the Trump administration and anger Beijing. Should that happen, analysts say it could lead to more U.S. companies buying and operating Chinese-founded apps or force Chinese tech firms eyeing U.S. expansion to look elsewhere.
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“All signs for the U.S.-China relationship are spiraling down, so why would Chinese companies try to push against this huge tidal wave, when they can just focus on other markets where they’ve had pretty good success already?” said Dev Lewis, a fellow at Hong Kong-based think tank Digital Asia Hub.
A U.S. government eager to crack down on China-based companies means Chinese tech firms could have to choose between “los[ing] out on the critical U.S. consumer market” or “sell[ing] to a U.S. entity to alleviate the security concerns,” said Daniel Elman, an analyst at Nucleus Research, a Boston-based information technology research firm
During a Monday press conference, Chinese foreign ministry spokesperson Wang Wenbin declined to comment on the potential sale of TikTok to Microsoft, saying the ministry does not comment “on the specific business activity of the relevant companies.”
Yet a Tuesday editorial in government-owned newspaper China Daily said Beijing would not accept the Microsoft acquisition, which President Donald Trump said he would approve if the U.S. government got a cut of the deal—an unprecedented and possibly illegal assertion of presidential power. The China Daily editorial said Beijing may retaliate if the Microsoft deal goes through, calling it a “planned smash and grab” by the Trump administration. It’s unclear what measures Beijing could take in response.
TikTok is the first homegrown Chinese Chinese app to attract a broad user base in the U.S., where it’s become a cultural phenomenon. The TikTok episode represents “unprecedented territory” for the U.S., Lewis said.
“Since the start of the Internet, the U.S. has never really had to contend with a foreign company in the tech space that’s successful in U.S. consumer data—this is sort of the first case where a foreign app has actually been popular with U.S. consumers,” Lewis said.