Banning TikTok: Are We Reproducing the Chinese Internet in America?

Yes we need protection from TikTok and WeChat. But we also need protection from our own tech giants.

Matt Stoller

Aug 7, 2020

Hi,

Welcome to BIG, a newsletter about the politics of monopoly and finance. If you’d like to sign up, you can do so here. Or just read on…

Last night, Trump issued an executive order to stop Americans from doing business with Bytedance and Tencent, the parent companies of TikTok and WeChat. In this issue, I’m going to offer an explanation and some analysis. And then I’d like to hear what you think, in the comment forums.

On Saturday, I’ll send out the issue of BIG I had been preparing before Trump made this announcement. Teaser - it’s on Warren Buffett.

And now…

What just happened?

Trump issued an executive order to ban transactions with TikTok and WeChat in the United States, or at least, to ban such transactions as long as these apps are owned by Chinese tech giants Bytedance (which owns TikTok) and Tencent (which owns WeChat.) This likely involves removing them from app stores and closing down American offices. There is speculation that Microsoft could buy the American part of TikTok (as well as TikTok in New Zealand, Australia, and Canada), which would in effect be the first significant break-up of a large technology company.

How does this ban work?

These executive orders take effect within 45 days, after which point certain transactions with Tencent and Bytedance become illegal. The Commerce Secretary will have to describe which transactions are illegal, so the details of how these bans work aren’t clear. The target is purely TikTok and WeChat, but in theory the authorization is much broader than that.

How broad?

Tencent is a massive company that has intertwined itself with commerce globally, mostly through its venture investing but also through joint ventures. Tencent owns stakes in a whole host of U.S. companies, especially the video game industry, including Riot Games, Epic Games, Supercell, Activision, Blizzard, Bluehole, Ubisoft, Discord, Huya, Douyu, Grinding Gear Games, Frontier Developments, Paradox Interactive, Funcom, Sharkmob, Fatshark, and Kakao. It owns stakes in Universal Music Group, Warner Music Group, Tesla, and Spotify. Google has a host of joint ventures and patent sharing agreements with Tencent. In theory, all of that could be illegal depending on the rulings by the Commerce Secretary, but I don’t expect anything beyond a direct barring of TikTok and WeChat.

Does Trump have the legal authority to do this?

Yes. The legal authority he’s using is under the International Emergency Economic Powers Act, which is the descendent of the Trading with the Enemy Act of 1917, and that’s the bill FDR used to get the United States off the gold standard when he responded to the Great Depression. The law allows the President to declare an emergency and then and block any transaction based on regulations promulgated by his administration. It has teeth, a fine of $250k plus 20 years in jail for violating the regulations he puts in place. In this case, Trump has used another authority to delegate the rule-making over the ban to the Commerce Department.

Will this be challenged in court?

TikTok can challenge it. If they do, I don’t think they’ll win, since courts tend to be deferential to national security claims unless they are totally outlandish. One interesting implication of this ban is that it is a fairly explicit acknowledgment that tech platforms are communications facilities with public obligations. In other words, one way to look at this ban is to recognize that the U.S. government just said that tech platforms should be regulated as public utilities.

Is this balkanizing the internet?

The internet has already been split for decades by the Chinese banning of American search and social technology, the so-called ‘Great Firewall.’ One result is that the Chinese internet ecosystem is profoundly different from that in the rest of the world. What Trump is doing is stopping Chinese tech giants from entering the American internet space, a sort of reciprocal arrangement to what the Chinese government enforces in their country. It comes on the heels of India doing the same thing to Chinese apps, which Trump cites in his executive order. So in a sense, this move is just the global internet’s fracturing being officially recognized and sanctioned by the U.S. and Indian governments.

That said, one of the important implications of this ban is that the United States is opening the door to other countries choosing to impose bans on U.S. technology firms in their countries. And while this kind of choice might wound the pride of U.S. policymakers, there is actually a pretty good argument that countries should have control over their own social and search ecosystems. Ideally we’d create fair markets in lots of different industrial areas, so it’s not just penalizing the U.S, but it is dangerous for Google to be so dominant that it can engage in its own foreign policy.

Moving towards federated systems for these tech platforms, which is to say allowing localized control with open standards, aka an open system like email versus a privatized one like Facebook, is one possible destination. Of course these kinds of ideas quickly veer into much broader strategic conversation about restructuring the global economy.

Are these executive orders a good idea?

It depends. It’s quite evident the U.S. needs to protect itself from Chinese influence, and TikTok is a clear vessel for manipulating Americans, and WeChat is a means to surveil and control the Chinese diaspora.

With regards to TikTok, it’s tempting to pretend that the app has trivial content, that it’s merely teenagers dancing, but not that long ago we would have imagined that nothing meaningful happened on Facebook either. WeChat is more complicated, since the app is a critical bridge for millions to keep in touch with friends, family, and business contacts in China. But since CCP has blocked most American apps, WeChat is the means by which the Chinese Communist Party can set the terms of global relationships between people in China and everyone else in the world, using coercive techniques and censorship. My guess is people move towards third country apps like Line. As Karen Kornbluh notes, banning WeChat also has implications around AI, helping to reset the playing field so Chinese giants no longer have unfair advantages.

That said, these executive orders are blunt and aggressive, and Trump’s commentary that the U.S. government should get part of the sales price for TikTok is a blunder. There is a process for undertaking security reviews for something like TikTok, using the Committee on Foreign Investment in the United States, and he should have used that process. Otherwise, it looks like he’s being a tyrant.

Is it a good idea for Microsoft to buy TikTok? Aren’t they a giant themselves? What about Facebook’s new competitive product, Reels?

To some extent this is a question about whether it’s technically possible to break off TikTok in the United States from the rest of the world. I don’t know the answer to that question. I don’t think it’s a good idea for Microsoft to own TikTok, because it means one more roll-up of power in the hands of a big tech monopoly in the U.S. I would prefer TikTok be sold to a smaller corporation. Microsoft is also a bad actor; the President of Microsoft, Brad Smith, has openly defended Huawei, and Bing is the only American search engine allowed in China because it is censored.

Facebook also just launched its new product Reels, which is both a copycat of TikTok and an attempt to dominate a market that it lost. Now that the market is artificially opened back up because of this ban, Facebook should be blocked from building out yet another social network by leveraging its existing dominant power from Instagram.

As national security expert Lucas Kunce notes, Facebook is in fact the reason we have a TikTok problem to begin with. When Twitter launched a TikTok-like product Vine years before, Facebook actively killed the product by refusing to let Vine access its APIs on the same terms other corporations got. Mark Zuckerberg personally made the call to shut off access to Vine, and Twitter eventually shut the product down. Then, Facebook allowed TikTok to advertise massively on its platform, at a time Zuckerberg was currying favor with the Chinese Communist Party to try to get into the Chinese market. In other words, Zuckerberg killed an American competitor using anti-competitive means, and promoted a Chinese competitor for his own business interests.

Now we have a TikTok problem, but that’s because policymakers refused to enforce anti-monopoly rules against tech giants. Or as Republican Congressman Ken Buck put it to Gilad Edelman in Wired on his worries about big tech monopolies being slothful,

“The reality is, the way we got to a dominant position in the tech sector is because we encouraged innovation. And if we stop encouraging innovation, we may dominate for the next five or 10 years in particular areas, but 20 years down the road, we won’t be dominant.”

Banning products? Stopping communications? Are we reproducing the Chinese internet here?

There is no comparison between blocking Chinese apps and imposing a centralized censorship machine run by the government targeting specific content. So in the short-term, no.

But there are reasons to be concerned about where the American internet is headed. The failure of the administration (and previous administrations) to constrain large tech platforms has significant consequences in how we understand this decision. The roll-up of power in the United States in the hands of Google, Facebook, Amazon, Microsoft and Apple mimics the centralization and authoritarianism of the Chinese internet, though without the explicit fusion with the state (though if ‘national champion’ proponents like Rob Atkinson get their way, such a fusion will happen).

One of the key mechanisms used in China to organize power is the way that the government discriminates against its citizens for political purposes, using automated or in some cases not-so-automated blacklists. This general approach is known as the ‘Chinese social credit’ scoring system, though it’s not clear how and whether it really works. That said, the Chinese ‘social credit’ score can find its twin in the U.S., as I noted two years ago after the merger of AT&T-Time Warner.

An airline could, for instance, analyze your email for the words “death in the family” and “travel,” look at your credit limit, and then offer you a price based on this information. Or imagine a group of companies putting together a common list of troublemakers, perhaps negative online reviewers or commenters or consumers who frequently return items. All of a sudden, for no obvious reason, someone who returns an item to one store might find that prices on a host of socially essentially goods have done up.

This is not the same as being tossed into a prison camp, but it is a variant of authoritarian power, only done for profit. The merger of AT&T-Time Warner, the elimination of net neutrality rules outlawing discrimination, and the Supreme Court’s weakening of antitrust laws against platforms in 2018, all show that we are moving towards an authoritarian internet here. Here’s more:

We are now in a totally unregulated world of lawless web giants who operate as the core infrastructure for our society. They can use their data and power to discriminate and exploit, and the strategy now for companies like AT&T is to emulate them, or die. And the deep links that intelligence agencies have with these giants suggest this power can, with a flip of a few switches, be easily weaponized by the state.
By endorsing the business model of total surveillance and discrimination, the Trump FCC, the Supreme Court, and Leon have made a deeply reckless decision about what kind of society we will have. A few goliath corporations in America may soon govern what we can see, say, do, and hear. It is not hard to see a social credit score–like system emerging in the United States. After all, Facebook, Google, Amazon, and now AT&T are in a race to effectively build one.

So that’s what I think about these executive orders. It’s a complex set of dynamics, but fascinating. What do you think? I’ll be checking in on the forum throughout the day.