Griffin on Tech: America - champions of innovation, as long as it’s US-made

The US House of Representatives' move this week to pass legislation that would force ByteDance to divest ownership of TikTok or face a ban, saw Washington DC and Silicon Valley join forces to see off a formidable competitor.

The Protecting Americans From Foreign Adversary Controlled Applications Act is not without precedent - the US Government has effectively banned Huawei and other Chinese companies from selling equipment and components to US companies, in the interests of national security.

But the move against TikTok is the first time the US Government has moved so resolutely against a digital economy app dreamt up and built beyond their shores. The bill still needs to make it through the US Senate, but President Biden has said he will sign off on the legislation if it does so. 

ByteDance is the majority owner of TikTok, which has 150 million US users, so it would effectively be forced into completely divesting its stake and severing all ties with China. There will likely be US buyers lining up to take TikTok off ByteDance’s hands, but those prospective buyers have all the leverage with the legislation allowing the president to designate TikTok as a national security threat and giving it six months to sell the company. 

In 2020, when President Trump made noises about banning TikTok, Microsoft emerged as an unlikely potential buyer, when TikTok had an estimated value of US$50 billion. Some valuations of the social media app, made famous by people showing off their dance moves and lip syncing in short clips, but has since become a go-to platform for short-form content, now has an estimated value of up to $250 billion.

A projection of power

As well as the heartbreak of having to give their baby away, ByteDance’s Chinese founders and employees, who own 40% of the company between them with the rest held by a roster of international investors, may not be able to get fair value for their wildly successful creation given the time constraints and limited pool of buyers with deep enough pockets to buy it.

As Paris Marx, who I interviewed recently on The Business of Tech podcast, wrote yesterday in his Disconnect newsletter, “a total ban still feels unlikely, but the United States flexing its muscle in this way should prompt a deeper examination of the ties that bind Silicon Valley and Washington, DC. 

“For decades, the tech industry wanted to appear in opposition to government power, but the truth is that the global expansion of US tech was always a project of US geopolitical ambition.”

While the FBI and US intelligence agencies have all warned about the threat TikTok poses to US democracy given it is subject to Chinese regulations that allow the government to access data held by Chinese companies, the evidence justifying a divestment or outright ban has been overplayed, just as it was in the Huawei case. Marx quotes early internet evangelist Al Gore’s comment from 1989 to illustrate what’s really going on with the move against TikTok.

Too big for its boots

“The nation which most completely assimilates high-performance computing into its economy will very likely emerge as the dominant intellectual, economic, and technological force in the next century,” Gore said.

Dominance in technology and the digital economy has always been mutually beneficial to Washington DC and Silicon Valley alike. It works for the US from a surveillance (remember the Edward Snowden revelations), national security, and economic point of view. TikTok got too big for its boots, challenging that dominance, and is now being put in its place. 

So much for the liberalised global trade order, the US championed for the last 50 years. At the same time, the US is dragging the chain on OECD global tax reform that would require multinationals to pay tax based on the profits they make in each jurisdiction, rather than being able to transfer their profitable revenue to low-tax regions. It’s protecting its tech giants in the process.

Just like Rocket Lab having to bend over backwards and essentially become a US company to satisfy the Americans that it could be trusted to launch rockets into space from the Mahia Peninsula carrying US military satellites, TikTok’s travails show that the US will allow open innovation to flourish - as long as it doesn’t threaten US power.