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Authors: Ace Chua, Bernie Tan
Region Head: Ace Chua
Editor: Akshat Daga
Illustration by Sonja Lam
Abstract
Following a whooping 110 million downloads within the US in late 2019, the Trump administration started monitoring TikTok and pushed for investigations of its potential national security threat, accusing it of transferring user data to servers accessible by the Chinese government. During the COVID-19 lockdown in March 2020, this had led to two billion downloads of the app worldwide. This issue escalated in August when Mr Trump signed the executive order to force the sale of TikTok’s US operations by Bytedance, its Chinese parent company to seal the deal within 45 days (Tillman, 2020). This article looks into the implications on the US consumer and retail market should the ban take place, and recommendations that the US government should take.
Background Information
During the 1987 US-Japan trade war, the Reagan administration imposed a three year ban on Toshiba for violating national security concerns of selling its semiconductor products to the USSR in 1986, and also accused Japan of unfair trading practices on the US domestic market (Wu, 2019). As a result, this had led to Japan’s 80% share of being the world’s semiconductor supplier in 1992 to decline sharply and resulting in Toshiba selling its semiconductor sector to US Bain Capital in 2018 (Lanlan & Qiao, 2020). In 2019 as part of the US-China trade war events, the Trump administration led a boycott on Huawei and ZTE due to security concerns and intellectual property theft, particularly aimed at its telecommunication operations concerning 5G, a faster cellular carrier in development (Brown, 2020). From these two examples of America undermining foreign companies’ progression and development, America is implied to have done such practices to protect its domestic industry and having a self-interest towards maintaining superiority and dominance in the technological advancement of its domestic firms over firms from other countries.
Rationale of Trump imposing the crackdown on TikTok
TikTok’s popularity and its large customer base in the US mainly stem from the younger population in creating and sharing 15 second short music videos. This is one of the two widely used Chinese applications worldwide, the other being WeChat, a super-app that combines social media, messenger and payment platform, that is popular among Chinese citizens in the US to communicate with their loved ones in the mainland. Together, these Chinese apps often collect a lot of user data inputs, and what is worrying for the Trump administration is a national security breach where data from American users may be accessed by the Chinese government for the wrong reasons through Bytedance (Gertz, 2020). Moreover, the presence and popularity of Tiktok may pose a threat to incumbent American social media giants such as Snapchat, Facebook and instagram with their platforms attracting millions of users, both American and worldwide (Child, 2020), and thus calling a need to protect their businesses.
Implications
Should Trump administration’s TikTok ban be actualised, this would result in more US firms to move out of China and back into the US, while Chinese firms may be decreasingly incentivised to continue operations in the US. In essence, the actualisation of the ban proves the manifestation of the protectionist, and perhaps nationalistic, stance towards its domestic market; which is evident when coupled with tax credits for firms to move back to the US, and coercions to cut governmental contracts with firms that refused to do so (BBC News, 2020). By doing so, the US reserves most of the economic pie for its own firms, leaving small crumbs of the pie for non-domestic firms.
Furthermore, the actualisation of the US ban can be seen as the beginning of the end of the role of the US as the guardian of international businesses, and the global economy (Huang & Madnick, 2020). Since the rise of capitalism, the US has always led the free market economy in terms of the highest nominal GDP when compared with the rest of the world. However, the actualisation of TikTok’s ban on the grounds of security concerns would open grounds for further discussions on the US becoming a socialist welfare state, as some would fear (Amadeo, 2020). Would the US begin to increase state interventions and controls of the domestic firms? Will these firms which seek to be profit-driven in the free market climate be locked down by the US government in the future? Such worries, prompted by the abovementioned coercion of the cutting of government contracts should firms decide not to lose out on potential overseas profits may result in the backfiring of US firms’ decision to return to the US or to move away from the crossfire of the US-China tensions as a whole.
In the retail market, the TikTok ban would be akin to adding charcoal to the pre-existing bonfire, borne from the COVID-19 pandemic mismanagement of the Chinese government. Based on Supply Lines, 40% of the US citizens out of the population sample of 1,012 US citizens would not purchase Chinese goods, and that was pre-TikTok ban threats (Murray, 2020). As such, once these threats go into play, a larger portion of these goods will remain on the shelves as domestic consumer sentiments with regards to Chinese goods and services as a whole would decline.
In fact, the actualisation of the TikTok ban may directly affect its close counterpart, Alibaba (Aspan, 2020). As both firms are technologically inclined, since Alibaba majoring in cloud services for small business in the US, this may fall under “security concerns” which would augment the very foundations of how these businesses were run - originally low-cost backend operations may cease to be the case (Monica,2020). Therefore, the retail market may suffer due to the lack of liquidity in a post COVID-19 pandemic climate, with higher costs to potentially factor for. These may result in cessation of these businesses resulting in an increase in unemployment rate, and the subsequent overall impact on the consumptions within the retail market.
Recommendations
As such, in this scenario where the US and China faces a prisoner’s dilemma, where if China simply chooses not to retaliate, it would result in the US government taking full advantage of the scenario to increase profits for US domestic firms in a possible attempt for political bids or economic recovery
Therefore, to prevent the further escalation of these tensions, external interventions will be required for negotiation between the two countries to deescalate the onset trade tensions and regulation threats between both countries. Doing so will allow a win-win situation where free trade between the two countries would be re-established, such that efforts to return the world to pre COVID-19 days would be more efficient. (Kraneshares, 2020)
A long-term solution may also be required in view of the two countries long-lasting structural disagreements. From the US perspective, a possible solution would be to reassess the involvement of the US powers in East Asia (Swaine, 2019). Simply put, this solution would involve trade-offs between the potential benefits from the strong involvement of the US in East Asia such the cooperative goodwill of the East Asian countries due to military assistance from the US, and advantageous economic relations with the East Asia countries (being the 4th largest economy in the world). Albeit so, in light of unprecedented levels of societal unrest marked by the BLM movement in the midst of the pandemic, it might be a suitable consideration to acknowledge China’s position as a world superpower and reconsider the responsibility of support and defence that China should hold for the East Asian countries. By doing so, more resources can be reinvested on the current societal issues in the US, which is also in line with the recent trend of nationalistic and protectionist stance the US current has.
Moving Forward
Whether the crackdown on TikTok or Chinese firms operating in the US persists ultimately depends on the outcome of the US Presidential election between Trump and Biden, where the crackdown is likely to persist if Trump is re-elected and probably alleviated if Biden gets elected.
In the case of Biden, his son has a private equity investment stake involving dealings with China, and this may lead to China’s involvement in changing the US political landscape and pressuring the US in improving the terms-of-trade with Chinese firms (Areddy, 2019). To add on, Biden manifests that he will review Trump’s China crackdown policies thoroughly and utilise them only as a means of earning government revenue instead of showing dominance over China. His party also advocated towards cooperation with China in tackling global economic and major issues, and encouraging China’s rise and development, and investing in R&D and technology among American firms to remain competitive (Leonard, 2020). Hence, the likelihood scenario to happen is a win-win situation for both US and China.
While this may affect other events under the huge umbrella of the US-China trade war, this article will only evaluate the implications on how the recommendations will improve the relationship between US and China firms.
References
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