October 18, 2020
By Allen Yu for the Saker Blog
Donald Trump was elected with a mandate to make deals and “drain the swamp.” I had my doubts he could make a difference in the geopolitical realm. But even on economic matters, he has not had a lot of success. His Tiktok saga reveals just how far he has left people down.
Trump’s demand for a fire sale of Tiktok hit a legal wall two weekends ago when a federal judge issued a preliminary injunction. Judge Carl Nichols, a Trump appointee, questioned whether a President had the legal authority to so broadly ban and restrict a “personal communication” and “informational” service such as Tiktok on “national security” grounds.
But even without the injunction, Trump’s vaunted deal-making skills were fast morphing into a freak show. From the beginning, Trump made unsubstantiated accusation that Tiktok was being used as a platform for Chinese espionage even when the CIA found no evidence of Chinese espionage. The EFF – which traditionally has been critical of China’s Internet companies – has also concluded that there is no evidence that TikTok is less secure than other social media apps.
Side note – Lesson #1: if you want to negotiate from a position of strength, you should not start out with a preposterous position, as you will soon lose the trust and belief of the other side. A negotiation is the art of find a deal that both sides walk away happy. If you just want to pummel the other to submission, any “gains” you get will not last.
In late September, after months of negotiations, a surprise deal was announced between Byte Dance and Oracle whereby Byte Dance’s operations outside China would be transformed into a new global company headquartered in Texas. Under the deal initially announced by Oracle late last September, Tiktok would be transformed into a new company headquartered in Texas. Oracle and partner Walmart would co-own 20% of the new company. Oracle would be designated a “trusted technology provider” to manage and store all of Tiktok’s user data. It would have the authority to audit source codes of Tiktok and parent company Byte Dance.
In addition, four of the five board members of the new Tiktok would be Americans, with one being a data security expert appointee approved by the U.S. government and holding a top-secret U.S. security clearance. A security committee whose members would be US citizens approved by the US government would be formed and chaired by the appointee.
Based on Chinese social media responses, this state affair was a big loss of not only face but business interests for China. Yet, from the jaws of defeat, Byte Dance was complimented for salvaging something out of nothing.
After initially giving his “blessings” to the deal, Trump backtracked just days later to demand that the core algorithms and AI behind Tiktok – designed, owned and controlled by Byte Dance – must be sold and handed over, too.
The fact that Tiktok is getting all this attention over data security is quite puzzling. Tiktok is a video sharing service for short, hip, fun videos popular among teens, hardly a target for international spying. An email, chatting, or cloud storage service would have represented far juicier targets for Chinese agents!
Furthermore, the U.S. currently does not have any federal-level data privacy law, let alone data security law. Authorities generally leave it to the “market place” and “competition” to keep companies in check. If the U.S. government is truly worried about the data security of American citizens, it should have gone after Facebook, Twitter, and Google and forced a change of ownership some time ago!
Some observers have suggested that the real reason for Trump’s attack on Tiktok is personal vengeance after K-pop fans on Tiktok allegedly sabotaged his first “post-Coronavirus” rally in Tulsa back in June. If so, this would be a major strategic blunder.
While the world’s Internet is currently dominated by American companies, strong political backlash against U.S. based Internet companies are already brewing across the globe, from Europe to India. If Trump manages to whip up nationalistic fervors around the world to carve up Internet companies on trumped-up “national security” charges, it will be mostly American companies that will be on the chopping blocks.
Side note – Lesson #2: you should negotiate with a solid understanding of the end goals – with good strategies. Merely appearing good “reality TV” fashion for political gain will net you little in the end. One can argue, the U.S. “wars on terror” and fights for “democracy” are such. They will hurt many … but they will not gain the U.S. much. Same here in the economic realm … as here with Tiktok.
Many Americans have falsely taken comfort in the thought that Trump’s actions constituted long overdue payback against Chinese government’s banning of U.S. Internet companies. In actuality, Trump’s actions are much more destructive than any policy enacted by the Chinese government.
Contrary to popular beliefs, China has always welcomed U.S. Internet companies to operate in China, provided they follow Chinese laws and respect government’s concerns over information that incite, misinform, defame, or that otherwise endanger national security. While some companies – such as Facebook, Google, and Twitter – have avoided China with much fanfare over “censorship” concerns, others – such as Microsoft and Apple – have done quite well after setting up Internet operations within China.
America has often made China into the world’s bogeyman over censorship. But China or not, there is no such thing as “freedom of speech.” Today American companies, including Google, censor on behalf of governments the world over on diverse issues such as privacy, blasphemy, defamation and hate speech to disinformation, copyright and national security. Just look to Twitter, Facebook, and Google’s “transparency report” for some shocking statistics.
Today, the Trump Administration is trying to make another bogeyman out of China over “data security.” But of course, the real question is whether the U.S. – and the world – can accept a second generation of globally spanning Internet companies that are not necessarily American.
Should only companies from certain nations be trusted? Is corporate governance sufficient to regulate globally spanning multinational companies? Or must we rely on some sort of forced nationalization?
Side note – if there is ever one topic I fundamentally and deeply disagree with the Saker about, it is on the notions of “freedom of speech.” For me, there is no such thing as “freedom of speech.” There are always limits and contingencies to speech, limits that depend on a society and its history, whether it be blasphemy, defamation, misinformation, disinformation, a violation of privacy or of copyright, hate speech, speech that incite, speech that spur violence, speech that undermines national security, and so on.
I find it fascinating that so many “liberal” free speech zealots have no qualms about the government making rules to ensure food and drug labeling are accurate yet … at least until very recently … these same folks are ok with disinformation and misinformation in the political arena.
In China, disinformation and misinformation has been recognized as a problem since the earliest days of the Internet. This is why China built its GFW. Let me give you an example.
Just earlier this week, there was an interesting story about Facebook and Twitter restricting the spread of a controversial New York Post article critical of Joe Biden and his son’s relationship to a Ukrainian company. Facebook restricted links to the article on grounds it couldn’t independently verify the story. Twitter restricted on the ground that they don’t publish “private” information or “hacked” information.
Would they be so gracious about restricting things when it comes to China?
I say, to the extent the West seems “freer” in the past, it’s only because of two things. One, in recent history, the West had been so much stronger than others. It was under so much less threat than others. There was just always so much less that constituted a threat to its social and national security. But this might be changing. Two, at least in modern history, the West has always monopolized the narrative regarding the social and political issues of our days. What is “censorship” by others is always anything but censorship when done in the West. There are always some righteous and obviously legitimate reasons to limit speech – whether it be defamation, privacy, hate speech, violence, blasphemy, national security, whatever. The issue of “freedom of speech” never even enter the analysis.
Here are a few recent examples.
Just two years ago, Zuckerberg cited Holocaust denial as an example of permissible free speech. However, just this past week, Mark Zuckerberg is saying that Facebook would ban content that “denies or distorts the Holocaust.”
Also consider this thing about Russia meddling in America. In the last few years, national security concerns have loomed large as many Americans became paranoid about Russia’s spending of a mere $100K could sway the 2016 elections. Social media companies are urged to do all sorts of things to limit “foreign influence.” Left undiscussed is what about the “foreign influence” this country perpetrates in other countries? Let’s not even go into the armed or political support – what of the voice of America, the national endowment for democracy – institutions that spew “foreign paid” misinformation and disinformation around the world?
Some Americans may reply: what of “foreign influence” if it helps to dig up the truth? Well, if that’s so, why do America care so much about “foreign influence” then? Also, why is there such focus on “foreign” interest but almost nothing on “domestic” special interests? To the extent some powers are “distorting” the “free marketplace of ideas,” aren’t “domestic” special interest just as dangerous to democracy as “foreign” interests?
In an explosive report by the Wall Street Journal, we have learned that it was Mark Zuckerberg who had been instilling in Washington “national security” concerns over Tiktok. Zuckerberg had privately lobbied Trump to do something about Tiktok. Coincidentally, Zuckerberg’s company Facebook owns a service called Reels that had thus far competed unsuccessfully with Tiktok and that would have the most to gain from continued uncertainties at Tiktok.
The specter of Larry Ellison – a personal friend and ardent supporter of President Trump – has also raised eyebrows. While Microsoft was the clear front runner to purchase Tiktok in early August, it was Oracle that ended up as the “surprise” victor in late September. According to a report by the Washington Post, Microsoft’s deal would have given the U.S. even more control over Tiktok’s data and in that sense addressed Trump’s concerns about “national security” even better.
Mixing private and public interests has always been an unfortunate hallmark of the U.S. government.
In targeting Tiktok, Trump has boasted that he expected political and financial paybacks for his attacks. On several occasions, Trump publicly demanded that whoever buys Tiktok pay a “finder’s fee” to the U.S. Treasury. After the Oracle deal was announced, Trump bragged that Tiktok had agreed to pay $5 billion to the Treasury and a special education fund to teach American children “the real history of our country.”
In an age when Americans have been on openly edge over foreign governments’ spending money on social media to influence elections, what should Americans think about their President soliciting billions from a “foreign adversary” to support his “pet barrel” projects?
It is really too bad that Trump’s rally cry of “America First” has turned into an ideology based on xenophobia. When Trump became president, I was fascinated by his tentative outreach to Russia and China … and his criticism of NATO and other aspects of the American “empire.” However, after four years, he has shown he is incapable of changing the course of this aspect of American history.
If the West wants to decouple with China, so be it. If the West wants to give up the Chinese market, so be it. In Trump’s view, the West had helped to “built up” China. In my view, to the extent the West “built up” China, China also “built up” much of today’s West.
America and Europe were in despair with high inflation, unemployment, and low productivity growth at the end of the 1970’s. China’s entrance into the global trade system ushered in a new period of continued prosperity in the West. China not only provided the West with steady and reliable supply of basic goods and services, it also built up a new prosperous middle class and opened up its huge market to the world. U.S. corporations reaped disproportionately huge profits – profits that are used to fund the R&D needed for further advances in chips, Internet, among others.
Whether Tiktok or Huawei survives the Trump Administration, the Chinese are no longer willing to indefinitely subsidize American R&D going forward. Efforts are afoot for Chinese companies to remove their dependence on critical American technologies – from electronic parts to chips to software to machinery – throughout their supply chain. They will demand this of themselves and of their partners in Europe and Japan and S. Korea and everyone around the world. A new ecosystem will soon arise that is intentionally stripped of critical “American” components and technology to better serve the Chinese market. This will be the lasting influence of Trump. China has no choice. China may suffer in the short term, but China is determined to win in the long term.
[note: a short, much abridged version of this article was initially published as a “commentary” on the South China Morning Post]
Allen Yu is an IP attorney in Silicon Valley, a founding blogger at blog.hiddenharmonies.org, as well as an adjunct fellow at the Chunqiu Institute for Development and Strategic Studies. He holds a J.D. from Harvard Law School and a D. Engr., M.S., and B.S. from UCLA Samueli School of Engineering.
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