Drew Bernstein
In recent developments, the U.S. House of Representatives passed a bill requiring ByteDance, the Chinese owner of TikTok, to divest its U.S. operations. This decision, surprising many in both Washington, D.C., and Beijing, represents a significant escalation in the ongoing technological and geopolitical tensions between the U.S. and China.
Legislative Process and Potential Impact
The bill, which passed the House with a vote of 352-65, still needs Senate approval and the President's signature to become law. If enacted, ByteDance would have six months to sell TikTok's U.S. operations. Failure to do so would result in the app being removed from app stores and blocked by internet service providers across the U.S.
This potential ban has left many of TikTok’s 170 million American users bewildered. The app's popularity surpasses the number of voters in the 2020 U.S. election and the combined membership of registered Democrats and Republicans. Despite its wide user base, bipartisan support for the ban highlights the heightened concerns about Chinese influence in an election year.
Influencer Economy at Risk
TikTok has created a robust influencer economy, supporting 224,000 American jobs and 7,000 small businesses, contributing over $24 billion to the U.S. GDP in 2023. Influencers and small businesses that thrive on TikTok's unique algorithm and virality might struggle to find a comparable platform, potentially facing significant career and business disruptions.
Impact on Investors
ByteDance, valued at $268 billion, generated $120 billion in revenues in 2023, with $16 billion coming from the U.S. market. A forced divestiture could offer foreign investors an opportunity for liquidity, potentially making TikTok an attractive IPO candidate. However, the Chinese government has the power to veto any sale, viewing TikTok’s recommendation algorithm as a security-sensitive technology. If blocked, international investors might find themselves holding shares in a less valuable China-only social media company.
Potential Buyers and Challenges
The prospect of acquiring TikTok has drawn interest from notable figures like former U.S. Treasury Secretary Steve Mnuchin and former Activision CEO Bobby Kotick. However, the complexities of separating TikTok from ByteDance, especially its recommendation engine, pose significant challenges. Without access to this core technology, TikTok’s value and appeal would diminish.
Turbulence for U.S. Capital Markets
The NASDAQ and NYSE could face turbulence from China due to the TikTok situation. Companies like Shein, which have Chinese roots but have outperformed Western competitors, might shift their IPO ambitions to markets like London, potentially making Wall Street a less attractive destination for global innovators.
Winners in a TikTok Ban
- Big Tech: Companies like Meta and Google could benefit from reduced competition, potentially recapturing lost ad revenues and user engagement.
- Big Law: Lawyers and lobbyists will profit from the legal complexities and regulatory challenges associated with a TikTok ban and subsequent divestiture attempts.
- Parents: A TikTok ban might reduce screen time for children, encouraging them to engage in more productive and developmental activities.
Conclusion
The potential U.S. ban on TikTok underscores the broader geopolitical struggle between the U.S. and China. While the ban could lead to significant disruptions for users, influencers, and investors, it also opens up opportunities for Big Tech and legal professionals. Ultimately, the long-term impact on the U.S. capital markets and global technology landscape remains uncertain.
