TikTok is Banned: What Next?
On August 6 Trump announced a ban for Chinese owned TikTok and WeChat which would come into effect in mid September if a US buyer was not found. Microsoft and Oracle flirted with the idea but no deal was found. Today Trump announced that TikTok would be removed from US app stores on Sunday 20th. This comes 4 months after the embargoes placed on Huawei, another Chinese tech company, over fears of state surveillance from the Chinese. This raises a more general question for tech companies who more and more of us are interacting with everyday. Should such hardline measures be being taken or is this healthy skepticism?
The main reason people are worried about these Chinese apps is due to Article 77, a law passed that gives the Chinese Government (state security) sweeping rights when it comes to obtaining data from any Chinese tech company. Initially people may be not so worried about this, saying even if the Chinese Government did have this information there's not much to do with it. But one must at least appreciate the scope of Chinese influence before brushing off such sweeping powers in a blasé fashion.
A prime example being Tencent, an unknown entity to those who do not follow the news, though remarkably powerful. With large stakes in Epic Games, creator of the ever popular Fortnite (40%), Snap Inc. (16%), Spotify (10%), Tesla (5%) and ownership of WeChat, the instant messaging service, with over a billion monthly users (over 3 million of these in the US). Now the problems seem a little more real, that is if you believe there is anything useful to be learnt from this data. As we have seen in the advent of big data, all data is useful data. For this reason I would err on the side of caution to appreciate what Article 77 means for the average person.
Sophie Batas, director for cybersecurity and data privacy at Huawei Europe argues that
“It is true that Article 77 of the State Security Law sets out an obligation on organisations and individuals to provide assistance with work relating to State Security,”. Though Batas goes on to state that there are no ‘backdoors’ put in place or any features that would breach the law in the country of use. A somewhat reassuring answer.
Another question to be considered is even if the data is sensitive and/or useful can the US afford diplomatically to go on with its banning of many Chinese technology services? As seen recently, China isn't afraid of reactionary foreign policy. When the US closed down a Chinese consulate in Houston last month, a US consulate in Chengdu was promptly closed. Tit-for-tat. In the wake of the coronavirus the US has been hit hard for a number of reasons, because lockdowns are fundamentally at odds with American culture of limited government and poor handling by the Trump administration. This has led to the euro being 10% up on the dollar since mid March showing disapproval in government intervention as compared to European nations.
As seen over the past 6 months the S&P500 has fared fairly well all things considered. This does not paint the real picture, with the average stock being 28% below its all time high. This is due to a ‘K-shaped’ stock recovery in which technology is dragging up all the weight of the poorly performing sectors such as energy (down over 30% since Feb 19th). It’s also worth noting that the bullish nature at the moment could be down to nothing more than low rates and a cheap dollar (this fragility in the past few weeks has been seen by the correction).
This is important because if the very companies which are giving the illusion of a strong US economy are banned from China it would spell disaster. As an example, Apple, which makes up almost $2tn of the $27tn market cap of the S&P500 index. China produces the vast majority of Apple’s products and makes up over 20% of their sales. Recent stock splits at Apple and Tesla have indicated confidence to the markets but could Chinese regulation derail this?
I think with all this in front of us you have to make the decision whether you think the animosity is to provide Trump with a boogieman for November, something he desperately needs as unemployment is still high and anti-Trump sentiment is rife.
For me, although a healthy level of skepticism is required, I do believe this foreign policy is perhaps a little brash. Especially considering the UK, and much of the west, will follow Trump's lead. Actions like this will only lead to exacerbating poor trade relations. Time will tell.