ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Trade war

As US scrutiny mounts, is TikTok set to be the next Huawei?

Washington weighs adding social media app to same trade blacklist as tech titan

 TikTok has come under fire in the U.S. due to concerns about user privacy.   © Reuters

PALO ALTO, U.S./HONG KONG -- Last year, tech titan Huawei found itself at the center of the trade war and the target of an intensifying U.S. crackdown. Now, Washington's scrutiny has turned to another Chinese tech company: the wildly popular video-sharing app TikTok.

Earlier this month, U.S. Secretary of State Mike Pompeo said publicly that the government is "looking at potentially banning" Chinese social media apps including TikTok, citing national security concerns -- the same reason that Huawei was blacklisted in 2019.

But why is a social media app garnering the same sort of scrutiny and suspicion as a major telecom equipment maker, and what would a Huawei-like ban mean for TikTok?

For some, the answer to the first question is politics.

"We're in this environment right now where China is being treated as one monolithic entity. And then within that, Chinese tech companies are seen as one and the same," said Samm Sacks, a senior fellow at Yale Law School's Paul Tsai China Center and a cybersecurity policy fellow at Washington, D.C.-based think tank New America. According to her, TikTok and Huawei are "totally different companies in terms of their market segments, cultures, ownership structures, overseas footprints."

One trait they do share, however, is global success, and this, Sacks said, is what put TikTok on Washington's radar.

"Huawei and TikTok are the only two Chinese tech companies that have truly succeeded outside of China's relatively closed tech ecosystem to become global brands that have global demands," Sacks said.

By April, TikTok, combined with its Chinese version Douyin, had been downloaded more than 2 billion times globally, according to market intelligence firm Sensor Tower. The U.S. -- with more than 180 million all-time downloads -- makes up over 10% of TikTok's active users outside China, behind only India and Indonesia.

And TikTok, like Huawei, is dogged by questions over Beijing's involvement in its operations and decisionmaking. U.S. lawmakers have pointed out that ByteDance could be forced to share user data with the Chinese government.

For some, this combination of global influence and alleged obedience to Beijing makes TikTok as big a security threat as Huawei.

"TikTok per se may never expand its reach beyond teenagers, but it is only a matter of time before a Chinese app with broader appeal hits the U.S. and EU markets," Claudia Biancotti, a senior economist in the International Relations and Economics Department at the Bank of Italy, wrote in a report for Washington-based think tank Peterson Institute.

"If widely adopted, such an app could become a Huawei-sized problem in terms of the access to the West potentially afforded to Chinese security services," she added.

ByteDance and TikTok have said that all of their U.S. user data is stored in the U.S. and Singapore and that their American operations do not fall under Chinese jurisdiction.

"TikTok is led by an American CEO, with hundreds of employees and key leaders across safety, security, product, and public policy here in the U.S.," TikTok said in a statement. "We have no higher priority than promoting a safe and secure app experience for our users. We have never provided user data to the Chinese government, nor would we do so if asked."

TikTok has also taken steps to demonstrate its commitment to protecting user data. Earlier this month, when Beijing imposed a controversial national security law in Hong Kong giving police sweeping power to obtain user data from online service providers, TikTok become the first global tech titan to terminate its service in the city.

But in the U.S., suspicion remains -- though it is unclear what a ban on the company might actually look like.

Unlike Huawei, which produces telecom equipment and electronic products that Washington can block through a trade blacklist, banning an app would be much more difficult, according to cybersecurity experts.

One approach the U.S. government could take is to force ByteDance to divest TikTok.

ByteDance acquired Chinese American company, which later became part of TikTok, in 2018. While the deal went smoothly at the time, a few months ago, the Committee on Foreign Investment in the United States, or CFIUS, launched a national security review of the acquisition.

CFIUS previously forced China's Kunlun Tech to sell Grindr, the world's largest LGBTQ dating app, after it deemed Chinese ownership posed a national security threat. If it decides the ByteDance acquisition presents similar risks, the Chinese tech giant could be forced to sell TikTok.

Another option is issuing an executive order that requires all networks providers to block access to the Chinese apps, similar to how China's "Great Firewall" is deployed to block certain foreign apps.

"To actually enforce something like that, I think, gets us into very murky waters in terms of our own position on internet freedom," said Sacks. "This is a page from Beijing's playbook."

The White House is also considering adding ByteDance to the so-called Entity List, the same trade blacklist that Huawei was put on in 2019, according to the Financial Times, which would severely restrict its access to U.S. technology, including updates provided by Apple and other app stores.

A U.S. ban of any form would be a potentially serious blow for TikTok and ByteDance. American users accounted for nearly 60% of its in-app spending during the second quarter of 2020, at nearly $20 million, according to data from Sensor Tower.

In addition to direct revenue from users, "the loss of the [U.S.] market would likely have a significant impact on TikTok's ad revenue outside China," said Alex Malafeev, CEO of Sensor Tower.

TikTok launched a new platform called TikTok for Business in June to encourage more brands to advertise on the app.

Most marketers, however, are risk averse and not likely to advertise on TikTok until the political headwinds clear up, according to Jin Kim, founder and CEO of Creative Digital Agency, a marketing firm in California.

"Most brands are in a 'wait and see' mode," Kim said. "I especially don't see the bigger brands doing [ads in TikTok] for the time being because the bigger brands are probably more concerned about privacy and risk than any other smaller brands."

Losing the U.S. market would be particularly painful for TikTok after it already lost another big source of revenue: India.

In June, the Indian government decided to block TikTok and 58 other Chinese apps on national security grounds.

TikTok -- which was previously installed on one out of every four smartphones in the country -- is expected to lose at least $12 million in revenue if the ban stays in place for a year, according to estimates of global consultancy Counterpoint Research.

But the ripple effects of a U.S. ban could go far beyond one company's finances, and fan the flames of tech nationalism.

"I just worry that this [ban] creates a precedent around the world, where governments will begin banning companies based on their country of origin, and based on the great power politics," Sacks said.

"We are already seeing more governments look to put up walls around code, around algorithms, around data flows, as ways to defend their sovereignty online."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends July 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more