The Danger of Hasty Action

Two things happened last week that demonstrated the ability of our government, when acting hastily, to produce suboptimal outcomes. While disappointing, it is not a surprise. This is an election year, which invariably brings out the worst in our politicians as they posture for political advantage. The two events were House passage of a bill intended to either force the sale of TikTok or, failing that, to effectively ban it, and President Biden’s statement on Nippon Steel’s proposed acquisition of U.S. Steel. They may seem opposite on the surface—the first is intended to force a sale and the second to block one—but, in fact, they have much in common, primarily being hasty actions that may end up preventing the best outcome in each case.

I have written about banning TikTok in the past, and my colleague Jim Lewis has written an excellent commentary on the actual security risks the platform may present. In brief, the two most oft-cited concerns are that, assuming the data TikTok gathers from its users ends up in Chinese government hands, China could use the information either for a variety of nefarious purposes like pressuring or blackmailing Americans or as a means of influencing U.S. public opinion, either by preventing some information from being posted on the platform or by using it to spread Chinese disinformation. Jim adds a third issue—the possibility of malware accompanying downloading the TikTok app—which he believes is the most serious problem of the three. For reasons I have explained previously and won’t repeat here, I am not persuaded that the first two issues are likely to occur sufficient to cause us much concern, although I admit they are possibilities. The third is also a possibility, though it is a risk people take every day when they download anything. We should constantly be searching for malware and alerting the public when it is found, but banning a single platform is not an effective defense.

For that reason alone, the House bill is a mistake, but it may also get in the way of a better outcome. Analysts have already observed that the six months the bill provides for the company to be sold to a non-Chinese entity is too short for what would certainly be a complex transaction, and the company’s valuation in the billions of dollars will significantly narrow the field of potential buyers. So, it appears that the likely outcome if the bill becomes law will be a ban rather than a sale, an outcome many of the bill’s proponents appear to be fine with. A better approach would be to push ahead with the negotiations in the Committee on Foreign Investment in the United States to find terms for a sale that would satisfy ByteDance, TikTok’s parent, and the Chinese government, which also has a say in the outcome. Sale to a U.S. entity would be a win-win outcome, but the bill’s effort to force the issue may end up precluding that and forcing a ban, to the annoyance of the country’s millions of TikTok users.

In the U.S. Steel acquisition case, President Biden intervened prematurely with a statement that could end up killing a possible deal that might be good for the company and the union. He said, “It is important that we maintain strong American steel companies powered by American steel workers. I told our steel workers I have their backs, and I meant it. U.S. Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated.” This is a process foul of the worst sort, since he is intervening in a legal process that is only just getting started. (The White House comment that it was not intervening is ridiculous on its face.) More important, his statement that U.S. Steel should be owned and managed by Americans may well kill off negotiations with Nippon Steel. As with TikTok, that would prevent a win-win outcome in which the United Steelworkers union might be able to obtain better commitments from Nippon Steel then they have from current management. It is entirely possible that wouldn’t happen, but to kill off the possibility before the outcome is becoming clear leaves the union with either the status quo, or the possibility of an inferior offer from Cleveland Cliffs which would almost certainly trigger an antitrust investigation. (Missing from this conversation so far have been the shareholders, who also have something to say about the transaction and probably prefer the substantially more lucrative Nippon Steel offer.)

If the union’s strategy was to use a presidential statement to pressure Nippon Steel—it is no secret this was always going to be a political decision—it may have overplayed its hand if Nippon takes the president at his word that he opposes non-American ownership. Alternatively, perhaps the parties will return to the table and reach an agreement the union will support, in which case the president may have to eat his words, along with other politicians who rushed to judgment.

In both these cases, the government—Congress in the first, President Biden in the second—responded hastily to political pressures and rushed their judgment. By doing so they may well have prevented the possibility of better outcomes. The moral of these stories is that even in an election year it is smart to take a deep breath and think before acting. Neither branch of government distinguished itself last week.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.