Butterfly Effect: Trump's Tied in TikTok's Knots
WHY YOU SHOULD CARE
Extricating himself from a twisted deal he sought — without hurting American interests — won't be easy.
Charu Sudan Kasturi
OZY Senior Editor Charu Sudan Kasturi's column, "Butterfly Effect," connects the dots on seemingly unrelated global headlines, highlighting what could happen next and who is likely to be impacted.
You know things have spiraled out of control when the world’s most profitable company can’t get a simple press release right. Walmart’s public statement last weekend on its proposed deal with Oracle to manage viral Chinese app TikTok’s American operations introduced us to the most inscrutable word since President Donald Trump’s “covfefe” three years ago.
Oracle’s technology, the Walmart press release said, “eliminates the risk of foreign governments spying on American users or trying to influence them with disinformation.ekejechbecehggedkrrnikldebgtkjkddhfdenbhbkuk.”
The embarrassing typo — which the retail giant subsequently corrected — was an apt reflection of the bizarre twists and turns that the planned TikTok deal has taken since Trump threatened to ban the app over national security concerns. On Monday, Oracle and TikTok’s Chinese owner, ByteDance, publicly disagreed on the fundamentals of what their deal involves. Trump has said both that the deal has his blessings and that he might scrap it. Yet one thing’s increasingly clear.
For weeks Trump has played the part of a leader browbeating Beijing’s Big Tech by applying pressure on ByteDance. Now it’s evident that the shoe’s on the other foot. Trump has tied himself in TikTok’s — and China’s — knots, with no easy way out of a geopolitical and business mess of his own creation.
To understand why, let’s break down the TikTok deal — or at least what we know of it.
ByteDance has promised that data of its U.S. users will be held in American territory, by Oracle, to assuage concerns over data privacy and security. That’s a commitment that the Trump administration itself previously accepted in a different deal that also involved China. In 2018, the Committee on Foreign Investment in the United States (CFIUS) approved a deal between China Oceanwide Holdings Group Co. Ltd. and American insurer Genworth Financial on the condition that U.S. user data be stored in America. From a data security point of view, there’s realistically little more that the U.S. can ask from ByteDance. And for Oracle, whose CEO, Larry Ellison, supports Trump — a rarity in American tech — the data of more than 100 million U.S. TikTok users would be a treasure trove.
But the debate over TikTok was always about politics and the November election — a part of Trump’s larger campaign to use China as a punching bag to deflect blame from his handling of the coronavirus pandemic. On Tuesday, Trump used his prerecorded address to the U.N. to directly attack Beijing for the “China virus,” accusing it and the WHO of conspiring to keep facts from the world. Perhaps that political calculation is why Trump has pivoted from the national security argument — which ByteDance has addressed — to the question of TikTok’s ownership.
Under the current deal, ByteDance will retain 80 percent ownership of TikTok’s U.S. operations — at least for now — with Oracle and Walmart splitting the rest. ByteDance’s American suitors insist the deal involves an IPO within a year, through which the Chinese firm’s ownership will be dissolved in the form of publicly sold shares. ByteDance has said it has made no such commitment.
Yet even without the IPO, Americans would effectively hold majority stakes in TikTok’s U.S. operations under the deal. That’s because Americans own more than 40 percent of ByteDance. So, in effect, coupled with the 20 percent that Oracle and Walmart would control, Americans would own a majority of TikTok’s U.S. operations. Under the deal, four out of five directors of the new company would be American.
Trump has insisted that ByteDance must give up complete control or he’ll pull the plug on the agreement. But no deal would deprive American investors and tech giants of controlling stakes in the past decade’s most successful social media platform. ByteDance’s U.S. investors include venture capital firms such as Sequoia, General Atlantic and Tiger Management.
Meanwhile China hawks within the Republican Party, such as Marco Rubio, are demanding that ByteDance also hand over ownership of its algorithm before Trump approves any deal. ByteDance has also said that while it will share the code with Oracle, it will continue to own the algorithm.
It’s a Catch-22 scenario for Trump. If he agrees to a deal, he risks appearing willing to compromise with China. But if he scraps it, even with the security commitments and effective American ownership that ByteDance has agreed to, it’ll send a message to stakeholders — including Walmart and Oracle — and foreign investors globally that he was never really interested in a resolution. That doesn’t align with his self-image as a shrewd dealmaker and would hurt the interests of American businesses.
“I understand the Chinese mind,” Trump says in his 1987 book, The Art of the Deal. Beijing, it appears, has read Trump even better.
- Charu Sudan Kasturi Contact Charu Sudan Kasturi