TikTok affair exposes ugly intersection between US politics and capitalism

The deal Trump has given his blessing to bears no resemblance to his original directive that TikTok should simply be banned in the US, nor his subsequent position that he would allow its complete sale to a US company.

Oracle (12.5 per cent) and Walmart (7.5 per cent) will own 20 per cent of the new TikTok entity between them, with China’s ByteDance retaining 80 per cent. Because General Atlantic and Sequoia Capital and other US investors already own 40 per cent of ByteDance, technically US ownership of the new company will be 53 per cent.

It’s a cynical exploitation of the pretext of America’s national security interests … where the politics gets even uglier by the day as the election looms.

That could be turned into a reality if ByteDance follows through with an initial public offering of the US entity and distributes shares in it to its own shareholders in line with their holdings but, until then, a Chinese company will have majority control of the app in the US.

While Oracle will host TikTok’s US data on its servers and have access to the underlying software codes and any updates, the US company won’t be fully American-owned. ByteDance will continue to own and manage its algorithms and will still have access to the user data.

Trump’s willingness to bless something well short of what his original ultimatum sought tends to reinforce the view the ban was always more about domestic politics and his attempts to demonstrate that he’s tougher on China than Joe Biden than it was about the national security implications of a short video app that mainly shows people doing silly things.

Reinforcing cynical views of the administration’s motives, Trump demanded that the price of a successful transaction would be a $US5 billion ($6.85 billion) payment to US Treasury – “key money” Trump called it – which he later said would be used to teach American children the “real history of our country”.

Oracle and Walmart have apparently agreed to pay what might be regarded as extortion (ByteDance claims no knowledge of that agreement) but they have said it will be used to establish an artificial intelligence-driven online curriculum to teach basic reading, maths, science, computer. History will be included in the program but, the companies have indicated, not history that reflects any particular bias.

Trump’s original demand that the $US5 billion be simply paid into the US Treasury foundered when he was told that would be illegal. He found it “amazing” and “foolish” that he wasn’t allowed to force a payment that US businesses and lawyers were shocked was even contemplated.

Is it a coincidence that a deal led by Oracle, while falling well short of Trump’s original demands, has received his blessing?

Oracle’s co-founder and chairman Larry Ellison has conducted fundraisers for Trump’s re-election campaign and its chief executive, Safra Catz, has been a significant donor to the campaign and was a member of the Trump transition team in 2016. Ellison, who Trump has described as “a tremendous guy,” has also been enthusiastically supportive of Trump’s controversial advocacy of hydroxychloroquine as a treatment for the coronavirus.

Trump wasn’t as enthusiastic about a deal when it was Microsoft, forever associated with Bill Gates, which appeared most likely to acquire TikToK in the US.

The deal he is now so approving of is not much different to what ByteDance offered at the outset when it said it was prepared to quarantine US user data, create a separate management structure for the US business and contemplate an IPO of the US operations.

Still, Trump can claim he is tough on China, forcing a “sale” and, regardless of what, if anything, comes of the “education fund,” promising the teaching of a new version of history to his base while appeasing a major donor and reducing the prospect of an electoral backlash from TikTok’s users.

It’s a cynical exploitation of the pretext of America’s national security interests but that’s the US today, where the politics gets even uglier by the day as the election looms.

China has, so far, been quite restrained in its response to the US actions against TikTok and WeChat, although its decision to impose restrictions on exports of artificial intelligence technologies earlier this month shaped the oracle deal. AI is key to the TikTok algorithms.

China has yet to say whether it is prepared to allow Oracle a line of sight into the TikTok software. It has, however, dusted off plans to use an “unreliable entities” list developed during the trade war with the US that would enable it to ban US companies from exporting or importing anything from China or investing in China.

China would investigate and act against any company that harmed its sovereignty, security or development, or halted contractual obligations with Chinese companies, or discriminated in a way that harmed the Chinese companies’ interests, its officials have said. Individuals could be investigated and have their visas cancelled.

That “blacklist” would be particularly threatening to companies such as Apple, which gets nearly 20 per cent of its global revenues from China and manufactures most of its iPhones in China.

It is unlikely that China will act without further provocation – it has a lot of workers and investment exposed to any sanctions on US companies operating within China – but it demonstrated during the tariff war that it is prepared to respond in a measured way with retaliatory responses to US actions and the escalation of Trump’s anti-China rhetoric and actions means an expansion of “the Great Wall of China” from the internet to terrestrial activities can’t be ruled out.