https://www.wsj.com/articles/tiktok-meets-the-meddling-feds-11601843585
TikTok shock: Last week a federal judge enjoined an executive order blocking new downloads of the Chinese video-sharing social network, which has 100 million users in the U.S. Wow—that’s a lot of people wasting time. Now a Nov. 12 deadline looms to shut off TikTok’s U.S. operation or outsource its management to U.S. partners. The Trump administration is concerned that the app’s user data could be funneled back to the Chinese government, which owner ByteDance denies.
In July, Treasury Secretary Steven Mnuchin announced TikTok was under review by the Committee on Foreign Investment in the U.S., or Cfius. There’s no question TikTok has quickly turned into a major social-media platform, but is it really a security threat?
No one can say why the Chinese government might want to spy on 16- to 24-year-olds who watch twerking routines. TikTok may censor information critical of Beijing, but it’s primarily an app for entertainment, not news. Maybe someday the platform could feature videos that influence elections. But that’s a big “maybe.” And please don’t make me think of Joe Biden twerking.
As for its potential as a spy tool, there are simpler remedies, like having Apple and Google set limits on the data TikTok can collect. Or restricting data transfers. I suggest making TikTok put up a bond, say $50 billion, that gets forfeited if it is caught providing data to Beijing.
The real problem is that the current remedy, a forced ownership transfer of TikTok’s U.S. operations to American investors, violates all forms of business decency. The Trump administration is basically stripping away equity from Chinese investors. Originally, Microsoft and Walmart were to invest and run the U.S. TikTok. When they dropped out, Oracle (with Walmart as a marketing partner) negotiated to be the “trusted technology provider” to TikTok. The data would stay in the U.S., and Oracle would buy an equity stake—basically buying a customer. And somehow, still unclear, Chinese investors would own less than 50%. This taking doesn’t smell right.
There’s a history of presidents manhandling corporate assets. Franklin Roosevelt threatened to nationalize the banks in 1933 forcing Congress to pass the Emergency Banking Act to strengthen balance sheets.
Until one did. In 2009 Barack Obama’s Presidential Task Force on the Auto Industry, with lead adviser Steven Rattner, effectively took Chrysler away from secured creditors, like JPMorgan Chase and many hedge funds, and put it in the hands of a trust for union retirees and Fiat, which wasn’t even a creditor. A Wall Street Journal report quoted an administration official: “You don’t need banks and bondholders to make cars.”
It was predictable that the Obama administration would hand a gift to the auto union, a major campaign backer. But Fiat? Maybe the central planners had some dreamy view that with increased fuel standards we’d all be forced to buy those utilitarian Fiat 500s—Obamamobiles. That’s almost as bad as a governor telling you what kind of car you can drive. Oh wait, California’s Gavin Newsom just did exactly that.
Either way, they gave a chunk of an American company to an Italian manufacturer and union members. This is taking value from one entity and giving it to another. Why no Supreme Court case a few months later? I didn’t like the precedent then and, sure enough, it’s happening again.
Remember, the Soviets nationalized all business. And in 1959 Fidel Castro seized Bacardi’s Cuban rum factories as the company moved its operations abroad. Today the Cuban remnant, Havana Club, is a trendy brand in Europe but tastes like gasoline. These aren’t the governments the U.S. should want to imitate.
I get that national security can take precedence: Defense companies should be U.S.-owned, and I can even tolerate the rule that U.S. airlines can only be 25% foreign-owned. And yes, China bans Facebook, Twitter, Google and most other search and social-media companies. Last year Amazon shut down its Chinese domestic e-commerce business to focus on cross-border selling.
But the optics of President Trump on a phone call with Oracle’s Larry Ellison discussing a forced transfer of TikTok equity don’t seem that different. Where are the Truman-era Supreme Court justices when you need them? Could a Biden administration hand refineries and frackers to the Sierra Club?
Facebook and Snap Inc. might benefit in the short term from a weakened TikTok. But they shouldn’t celebrate: Once government gets involved, those high price/earnings stock multiples that tech companies enjoy, which provide access to cheap capital, will start fading. Investors don’t like paying up for future earnings if they feel the government has a heavy hand.
Take a look: Facebook, Apple and Google have price/earnings multiples over 30. General Motors and Lockheed Martin are at around 15. Before Covid, United Airlines’ P/E ratio was 8. Believe me, investors won’t like government messing with technology.