Until August, many people around the world knew TikTok as a social media app for lip synching teenagers. Then the Trump Administration issued an executive order that accused the company’s Chinese owners of turning over user data directly to the Chinese government.
Given the Chinese Communist Party’s Internet Security Law, there’s a reasonable chance the accusation has merit. Either way, TikTok challenged the ban as unconstitutional and in September a judge sided with the company. In the meantime, and as a means to appeasing the US government, a minority stake in TikTok will potentially be handed over to new US-based owners Oracle and Microsoft. In a related move, the Trump Administration also issued an executive order banning WeChat, the immensely popular Chinese super app.
What happened between TikTok and WeChat and the US government is part of a broader trend of shifting approaches to the oversight and regulation of global businesses. After years of unchecked globalization, governments are increasingly renegotiating long held norms guiding the way multinational corporations do business. Technology is often the focus — the European Commission has repeatedly gone after American tech companies for privacy issues, and in 2016, enacted the Global Data Protection Regulation (GDPR), which kicked off a global wave of data protection regulations. But while tech companies may be in the crosshairs now, there’s no such thing as a multinational business that doesn’t depend on technology, so as goes the tech industry, so goes the world of business overall.
Analysts say these moves are likely to raise costs for businesses, especially in the tech sector, and create an environment of heightened uncertainty. The EU’s GDPR regulations and similar laws in countries like Canada, South Korea, Brazil, Thailand, India, and South Africa, for instance, require companies to comply with a dizzying web of consumer data protection laws. They also could force companies to start hosting their data within strict geographic boundaries. In July, an EU ruling deemed the export of most EU customer data to the US to be illegal on the grounds that the US lacks adequate protections for customer data. Frank Heidt, CEO of Seattle-based Leviathan Security Group, says he envisions a scenario in which multinational companies are forced to switch to local cloud computing services or if none are available, build their own infrastructure. According to a report from his firm, such forced data localization raises the cost of hosting data by 30 to 60 percent.
There is also a view that the US government’s moves against TikTok and WeChat, done in the interest of national security and protection of American economic interests, could end up having an opposite effect. William Alan Reinsch, a former commerce under-secretary in the Clinton administration and senior adviser for the Center for Strategic and International Studies, says that bans and forced sales of foreign companies set a dangerous precedent. “If you’re France or Germany, you don’t want to say you’re blocking an Internet company because the Chinese are doing it,” says Reinsch, referring to China’s Great Firewall policy that has long blocked many US tech companies from operating in China. “But if the Americans are doing it, then it’s a different thing. This makes it a lot easier for other democratic countries that have free speech to justify the same kind of tactics.” Japan and Australia are now considering a TikTok ban and in India, the app is one of more than 50 Chinese entities that have already been blocked.
Susan Aaronson, head of the Digital Trade and Data Governance hub at George Washington University, calls attempts to wall off the internet “beyond misguided” because they don’t account for the extent to which American companies rely on the open flow of information across borders. “It’s dangerous to the future of the very sector that can help us grow and power us through our enormous budget deficit,” she says. “Under the guise of protectionism and the national security rubric, you could argue that [the US government] is undermining American competitiveness.”
Last year, America’s five largest tech companies – Facebook, Amazon, Google, Apple, and Microsoft – received an average of 49 percent of their revenues and most of their growth from outside the US. A loss of access to global markets would obviously have significant implications for growth, and for the global clients of these companies’ services (think cloud and communications infrastructure for the Fortune 2000). This same interdependence isn’t true for Chinese companies, which are not nearly as reliant on international markets and have plenty of room for expansion within the country’s rapidly-growing domestic market.
In August, more than a dozen large American companies, ranging from Ford, MetLife, P&G, Disney, and Walmart, initiated a call with White House officials to get clarity into what the WeChat executive order would and wouldn’t mean. On the call, which was organized by the US-China Business Council, executives argued urgently against a ban on US companies using WeChat in China, noting that many of them use WeChat to sell and market their products to Chinese consumers. Getting cut off from this popular app, they argued, would put them at a severe competitive disadvantage. Walmart, for instance, gets about 9 percent of its international sales from China, which happens to be its fastest-growing market.
A further escalation of this zero sum technology Cold War between the US and China, which includes battles over Huawei’s 5G hardware and tariffs on semiconductors, could lead to a “splinternet,” with companies participating in a network aligned with either the US or China. “What you’re doing is, in effect, making it impossible for, let’s say, the companies that want to do telematics and auto controls for future electric vehicles or the virtual reality goggles that Google makes,” says Vijay Vaitheeswaran, US business editor at The Economist, who spoke with John Battelle in this month’s Signal Conversation. “They won’t work on the same technology when they are put on in California as they will in Shenzhen, for example.”
Although such moves may seem to foretell the end of globalization, it’s more likely to mean the end of a period of ease in crossing borders. Consumers will still want what they want, no matter where it comes from in the world, and businesses will find ways to get it to them, cumbersome or not.