Argument

Beijing’s Retaliation on TikTok Could Hurt U.S. Firms

A forced sale may create another hurdle for U.S. companies operating in China.

In this photo illustration, a mobile phone featuring the TikTok app is displayed next to the American flag.
In this photo illustration, a mobile phone featuring the TikTok app is displayed next to the American flag. Cindy Ord/Getty Images

On July 31, President Donald Trump told reporters that he planned to ban TikTok in the United States, sending shockwaves through the technology sector. After a false start over the weekend, Microsoft began negotiations with TikTok’s parent company, ByteDance, to purchase the app. The Committee on Foreign Investment in the United States has reportedly given TikTok 45 days to find a buyer or face a ban of questionable effectiveness from the U.S. market. The Trump administration has forced Chinese companies to reverse purchases of U.S. companies in the past—most recently the gay dating app Grindr—but this would mark the first time the U.S. government forced a Chinese-developed product with significant market share out of the U.S. market.

The Chinese government might retaliate to either a U.S. government outright ban or a forced sale of TikTok, but the long-term implications of a forced sale are potentially more worrying. Although ByteDance is not a state-owned enterprise or even a favored nominally private champion like Huawei, it is a major Chinese technology company with vast domestic and global markets. Some investors are valuing TikTok at $50 billion, about one-half of the valuation that ByteDance received in May. On July 30 and Aug. 3, China’s Ministry of Foreign Affairs (MFA) registered its objections to the U.S. government’s action against TikTok, noting the United States “is threatening a Chinese company based on presumption of guilt … in violation of the [World Trade Organization] principles of openness, transparency, and nondiscrimination.” China has a fairly consistent policy of measured but reciprocal retaliation to U.S. actions, such as shuttering the Chengdu consulate in retaliation for the abrupt closure of its consulate in Houston, and it has maintained this proportionality following U.S. actions such as cutting media visas and sanctioning officials.

Beijing has been less likely to retaliate against U.S. companies in response to U.S. government actions targeting Chinese businesses for several reasons. The first is that clear equivalents are often lacking, since China severely restricts foreign businesses and investment already. There is no U.S. equivalent to TikTok in China because almost all U.S. technology and information companies have already been blocked in China. This lack of equivalency forces the Chinese government to consider asymmetrical responses.

The Chinese government also continues to enthusiastically solicit foreign investment to stabilize its economic growth, hit hard by COVID-19, and to continue its drive toward becoming a more advanced, diversified economy. And finally, maintaining positive relations with the U.S. business community is politically astute in the current climate, too, since U.S. businesses have traditionally sought to dial back a tougher approach to China from U.S. policymakers, and continue to try to do so today.

This measured Beijing action extends beyond the U.S.-China sphere. Notably, the Chinese government has not retaliated against Indian companies after the Indian government banned TikTok and 58 other Chinese apps in June. On June 30, a Chinese MFA spokesperson objected to the ban and noted China’s strong concern. But on July 2, a Chinese Ministry of Commerce spokesperson confirmed: “I want to clarify that China does not impose any restrictive or discriminatory measures on goods and services from India.” This nonresponse by the Chinese government could indicate that it will generally not retaliate over actions blocking TikTok, or it could simply reflect that China’s delicate detente with India over the Galwan Valley skirmish is more important, for now, than economic retaliation. Additionally, as one Indian newspaper noted, “China cannot do a tit-for-tat ban on Indian innovators. Why? Because India … has no presence in the top technology innovations of the world.”

But if the Chinese government does choose to retaliate against U.S. government action on TikTok with measures targeting U.S. companies, it has several potential candidates. While it is hard to determine the most likely among them, Cisco could be one option since it has been considered out of favor in China for years due to its intellectual property disputes with Huawei. In fact, in February the U.S. Justice Department announced an investigation of Huawei theft of U.S. intellectual property, and, while unnamed, Cisco is widely understood to be one of the victims cited in this case. Other U.S. companies that might make a retaliatory short list include Amazon Web Services, which has a cloud services joint venture in China; Apple, which has huge markets and supply chains in China; and Microsoft, which has major markets, research and development, and supply chains in China.

Given the Chinese government’s interest in balancing the business community’s favor with a principled policy of reciprocal retaliation to U.S. government actions, Beijing could also choose more discrete forms of retaliation, such as continued discrimination against U.S. technology companies’ expansion in China.

If the U.S. government forces TikTok to sell its U.S. holdings, rather than simply banning the app in the United States, this unfortunately ratchets up the likelihood for the Chinese government to pursue some form of retaliation against American companies, including the potential to force sales of assets in China. The Chinese government could easily target U.S. companies designated as “critical information infrastructure” under the vague Cybersecurity Law for forced fire sales, and this could be a potent weapon in China’s toolbox to consolidate domestic control of strategic emerging industries.

To be clear, the Chinese government has myriad ways to squeeze foreign company market share in China. But if the U.S. government does force a sale of TikTok, it could be erecting another hurdle in the already hazard-strewn path of U.S. companies doing business in China.

Nina Palmer is a Senior Director at the Albright Stonebridge Group’s China Practice. She has previously worked at the U.S. Embassy in Beijing, U.S. Department of Energy, and U.S. Navy.

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