After the U.S. – China Phase 1 trade deal, the relations between two countries once again suffered as the U.S. government recently announced security measures targeting two giant Chinese tech companies, Tencent and ByteDance.
Last August, U.S. President Donald Trump and his administration issued three new national security measures, including an expansion of the State Department’s Clean Network initiative and two executive orders. The Clean Network initiative forbids the use of Chinese tech in the U.S. telecom system and prevents app stores (Apple App Store, Google Play) from offering certain Chinese apps whilst the executive orders prohibit all U.S. citizens and businesses from conducting business with two Chinese companies: Tencent Holdings, owner of WeChat, and Byte Dance, owner of TikTok. The exact boundaries of the ban are still being worked out, and it is likely that they won’t be fully detailed until the order goes into effect on September 20th. This decision will definitely have both immediate and long-term impacts on the companies and their American consumers as well as on the relationship between U.S. and China.
Generally, the ban was issued due to rising concerns among American officials around data security and data privacy of these apps. President Donald Trump claimed that TikTok is collecting and sending personal data of Americans directly to the Chinese government. The administration also expressed concerns that the app can be used as a channel for spreading disinformation to American citizens.
Moreover, there are several broader motives that also contribute to the U.S.’s actions against TikTok and WeChat. The move is considered to be an escalation in the already ongoing technology disputes between U.S. and China, building on earlier American moves against hardware companies such as Huawei and ZTE. The ban also reflects some officials’ desire for greater reciprocity in the U.S. – China relationship, given that many U.S. technology companies cannot operate freely in China. In addition, the ban is deemed to have political motives as well since it came just two months before the November Presidential Elections in which President Trump is campaigning hard on an increasingly strident anti-Beijing message.
In response to the U.S.’s move, TikTok has denied all the allegations, and Beijing has opposed the executive orders, saying it will defend the legitimate rights and interests of Chinese businesses. TikTok has also expressed its intention of challenging the executive order through the judicial system to ensure that the company is treated fairly. At the same time, US-based users of WeChat are suing the White House in a bid to block the executive order aimed at WeChat. The complaint was brought by the nonprofit US WeChat Users Alliance and several other people who use WeChat for working and staying in touch with relatives in China.
Currently, TikTok and Microsoft are in the middle of a negotiation through which Microsoft will acquire the operations of TikTok in the U.S., Canada, New Zealand and Australia to save the app from being divested once the order comes into effect. However, the fate of TikTok remains unclear. For Tencent Holdings, the situation doesn’t look good at all as its share price immediately dropped after the U.S.’s plans were announced.
Although the U.S.’s security measures may seem like an isolated issue between U.S. and China only, the American government may have inadvertently laid the groundwork for the end of an open and free internet and have accelerated the creation of a splinternet, whereby a country or groups of countries fracture the world wide web into a series of walled sections shaped according to their own politics. Moreover, the ban has also deepened the technology conflict between China and the U.S., laying the ground for a more severe retaliation in the future.
Read more about our other consulting services.
The insights provided in this article are for general informational purposes only and do not constitute financial advice. We do not warrant the reliability, suitability, or correctness of the content. Readers are advised to conduct independent research and consult with a qualified financial advisor before making any investment decisions. Investing in financial markets carries risks, including the risk of loss of principal. Past performance does not guarantee future results.
The views expressed herein are those of the author(s) and do not necessarily reflect the company's official policy. We disclaim any liability for any loss or damage arising from the use of or reliance on this article or its content. ARC Group relies on reliable sources, data, and individuals for its analysis, but accuracy cannot be guaranteed. Forward-looking information is based on subjective judgments about the future and should be used cautiously. We cannot guarantee the fulfillment of forecasts and forward-looking estimates. Any investment decisions based on our information should be independently made by the investor.
Readers are encouraged to assess their financial situation, risk tolerance, and investment objectives before making any financial decisions, seeking professional advice as needed.
