Tick Tock for TikTok?
August 10, 2020
There was a new wave of anti-China activity emanating from the administration last week, some of it on target, some of it less so. Taken as a whole, it seems we have turned a corner in the bilateral relationship toward a much more aggressive posture, clearly willing to disrupt economic connections despite not having a clearly articulated policy goal.
In the more understandable category was a recommendation by a presidential working group that Chinese companies be delisted from U.S. stock exchanges if they refuse to allow the Public Company Accounting Oversight Board (PCAOB) to review their auditing documents. Companies would have until 2022 to comply, similar to legislation pending in Congress. There would also be a co-audit alternative if the Chinese auditor is not allowed to comply.
This is not a new issue—it goes back at least 8-10 years—and it is hard to find anyone outside of China sympathetic to the Chinese position, which appears to be that outside regulators looking at Chinese auditing papers is an infringement on its sovereignty. There were efforts in the past to reach a negotiated solution that did not succeed, and it appears patience has run out on the U.S. side. It is hard to argue that Chinese companies should be treated more leniently than everyone else, particularly when there are plenty of examples of Chinese companies engaging in financial fraud. Disruptive or not, this action is overdue.
Another understandable, if fruitless, action was the imposition of sanctions on Carrie Lam, the Hong Kong chief executive, and 10 others because of their role in implementing the new national security law. This was not the first Hong Kong sanction, and it will not be the last, but it raises the question of whether our aim is misplaced. There is no question that Hong Kong authorities are charged with implementing the new law and are therefore “guilty,” but there is also no question that they had nothing to say about the law and no choice in implementing it. The real culprits are in Beijing, and sanctioning Carrie Lam and her colleagues will not persuade them to change their policy.
Then we have the president’s two executive orders relating to TikTok and WeChat. The two companies are presented as national security threats, but the scope of the orders remains unclear. By banning “transactions” with them does that mean engaging in a business transaction with the company or posting a video on TikTok, or both? Does sending someone in China a message on WeChat constitute an offense? The statute being cited as authority for the order—the International Economic Emergency Economic Powers Act (IEEPA)—excludes personal communications and informational materials, which arguably covers videos and messages, and attempts to block those will certainly be litigated.
The larger question is whether they’re really security threats. There is no consensus on that, although everyone seems to believe the Huawei case is more dire because it involves hardware and software that operate U.S. telecommunications systems. Concerns with TikTok and WeChat relate more to the large quantities of data that might end up in Chinese government hands (TikTok claims that will not happen) or their potential as propaganda or fake information tools. Those are certainly possibilities, but it is hard to see them as the same magnitude as Huawei. In the case of TikTok, the order might be intended to force a sale, which would obviate the need to deal with an actual shutdown. That is not the case for WeChat, but its U.S. market footprint is much smaller.
However this is resolved, there are two larger issues we are ignoring. First, the IEEPA bar has been getting lower and lower over the years. The original concept was to reserve it for genuine international economic emergencies, but every president since Ronald Reagan has found it a convenient authority to justify actions in lesser circumstances. There is general agreement that the president should have authority to act in emergencies, but a strong case can be made that this more than 40-year-old law is due for an update, and there should be a clearer definition of what constitutes an emergency.
Second, we rarely conduct cost-benefit analyses when imposing sanctions, and we should. In these two cases, the cost is not just that millions of teenagers won’t get to share their videos (some would say that’s a benefit) nor is it just Chinese retaliation, which is certain. The real cost is the abandonment of our long-standing support for a global, open internet. We have championed that from the internet’s beginning and steadfastly opposed the efforts of China and others to censor the internet and control access to it. We have opposed China’s Great Firewall and have funded projects that enable Chinese citizens to get around it. Now it appears we are constructing our own firewall to keep China out, just as they try to do to us. TikTok may, or may not, be dangerous, but our strategy may be more problematic in the long run because it will accelerate the fragmentation of the internet, which will retard the spread of democracy and slow down global economic growth at the very moment we need more of both.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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