Business

What's happening with TikTok? Here's the latest

Posted September 17, 2020 2:49 p.m. EDT

— With roughly 100 million users in the United States, it's no surprise that TikTok videos have taken over the internet.

But as the relationship between Washington and Beijing frays, the fate of the video app, which is owned by China's ByteDance, looks uncertain. In recent weeks, US government officials have claimed that TikTok poses a serious threat to national security, and President Donald Trump has threatened to ban it unless an American company takes control of its domestic operations.

That set off a bidding contest that's roped in some of America's top corporations, including Microsoft, Oracle and Walmart. While Microsoft is no longer a contender — the company on Sept. 13 announced its bid was rejected by ByteDance — Oracle appears to have emerged victorious and Walmart may still have a small part to play. While Oracle has agreed to become TikTok's business partner in the United States, it's not clear that the proposed deal will appease government officials on either side, who have indicated they intend to carefully review any new arrangement.

What is clear is that the fight over TikTok is bigger than who owns an app popular with Generation Z. It's also about the future of US-China relations, and the murky new rules businesses are forced to navigate as tensions between the world's two biggest economies ramp up.

Here's the latest

Oracle said it submitted a proposal to the US Treasury Department earlier this week to partner with TikTok in the United States. But the companies have yet to secure support from either Trump or Beijing, which means the saga is far from over.

Under the deal, ByteDance will continue to be TikTok's majority shareholder, according to a person familiar with the matter. TikTok would set up its headquarters in the United States, the person said, while Oracle will host TikTok's user data and review TikTok's code for security.

That could be problematic. Trump said this week that he would oppose an arrangement that left ByteDance with majority control.

"Conceptually, I can tell you I don't like that," he told reporters Wednesday. "If that's the case, I'm not going to be happy with that."

Trump said he expects to be briefed on the proposal Thursday.

"It has to be 100% as far as national security is concerned, and no, I'm not prepared to sign off on anything," Trump said. "I have to see the deal."

How did we get here?

The frenzy kicked off in early August when Trump signed an executive order that would effectively ban TikTok in the United States unless ByteDance could find an American owner for its US operations by Sept. 20.

The Trump administration expressed concerns that the hugely popular app could be used as a spying tool by Beijing. Authorities also fear that it could be leveraged to collect personal data on US citizens, or to censor speech deemed sensitive by the Chinese government.

TikTok has denied those allegations. The company has said its data centers are located entirely outside of China and that none of that data is subject to Chinese law.

The Oracle announcement came days before the executive order was due to take effect. Some experts think the proposed deal could pass muster because of Trump's ties to cofounder Larry Ellison, a supporter of the president. CEO Safra Katz has also donated to Trump's reelection bid.

Still, the decision was a surprise to some following negotiations who expected a joint bid from Microsoft and Walmart to win the day.

What's Trump's role?

Trump has positioned himself as the kingmaker any deal of any TikTok deal, making clear that he must agree to the terms before anything is made official.

If that seems unusual, it's because it is. While governments often vet pending deals to protect consumers from monopoly power, and often do weigh national security when a merger is announced, Trump's deep involvement is a stark departure from how deals are typically finalized — as is his move to compel a sale in the first place.

"In the end, Trump is the X-factor," said Dipayan Ghosh, the co-director of the Digital Platforms and Democracy Project at the Harvard Kennedy School. "Whatever he wishes will happen, no matter the merits of the related set of policies underlying the proposal."

Trump has previously said that any company that scoops up TikTok must make a payment to the US Treasury as a sign of thanks. It's not clear if Trump has the legal authority to mandate such a requirement, which would be unprecedented.

Why does this matter?

The battle for control of TikTok in the United States goes beyond social media, security concerns and who winds up in charge.

Sure, that's a big part of it. But the outcome will have major geopolitical consequences, too, as the United States and China move further apart under Trump.

For a while, the focus was on trade and protecting intellectual property, with both sides slapping tariffs on hundreds of billions of dollars in goods while government officials tried to negotiate new terms of engagement. But over the past two years, sensitive technology has become a big area of contention, too.

The US government has been conducting a long campaign against China's Huawei, which makes smartphones and is a leading manufacturer of equipment for 5G wireless networks. Citing similar spying concerns, the Trump administration has pushed allies to opt for other 5G equipment vendors, while cutting off Huawei's access to US technology, including crucial computer chips.

As pressure expands to TikTok as well as messaging app WeChat, which is owned by China's Tencent and could also face a US ban, companies are considering the emergence of a new world order that could reshape how global firms do business.

Deutsche Bank has estimated that supply and demand disruptions, along with the construction of a "tech wall" that forces companies to create two sets of standards for the United States and China, could cost companies $3.5 trillion over the next five years.

The broader economic relationship is also at stake at a delicate moment following the historic shock from the pandemic. In a report published in mid-September, the consultancy Rhodium Group found that US-China investment dropped to its lowest level in nine years during the first half of 2020 as tensions rose.

I use TikTok. What does it mean for me?

As the situation rapidly progresses, TikTok's tens of millions of US users worry they could lose access to one of their favorite products.

For now, nothing has changed, and people can continue to post their short videos of dances, fun recipes and comedy routines per usual.

Should a ban be enacted, however, it's still not clear what it would mean for users.

The executive order Trump issued on Aug. 6 order bars all "transactions" with TikTok, which could be interpreted to include downloading the app or hosting it on official app stores. But more information would be needed should the decree take effect.

— Brian Fung, Sherisse Pham, Jill Disis and Selina Wang contributed reporting.

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