Will China’s new export controls prevent TikTok sale?

TikTok's parent company ByteDance has said it will abide by new Chinese export controls, in a move that could prevent the video app's sale to the US and have long-term implications for tech multinationals.

Following concerns over data privacy, Donald Trump recently signed an executive order under which TikTok would be banned in the US unless its US operations could be sold to a US owner - most likely Microsoft and Walmart in combination. Other potential buyers, including Oracle, are also believed to be in the frame.

TikTok has challenged the order, saying it plans to file a lawsuit against the US government claiming that due process hasn't been followed.

And now the Chinese government, too, has struck back directly. For the first time in 12 years, it's extended the list of technologies that face export restrictions, which now include ‘personalized information based on data analysis’ and ‘artificial intelligence interactive interface technology’. 

And the following day, China’s official Xinhua news agency quoted a claim by academic Cui Fan that the updated rules could apply to ByteDance and a TikTok sale. This would mean that any such deal would require a licence, signaling the Chinese government's intent to take charge of the process.

This puts the Trump administration on the spot as to whether it will actually follow through on its threats to ban the app if a sale doesn't take place by mid-September.

China and the US face up

Trump is, so far, standing firm, last week reiterating that if the company's US operations weren't sold by the deadline, 'we close it up in this country'.

Indeed, White House trade adviser Peter Navarro has threatened to up the ante, telling Fox News: 

"It is critical that this country not use apps that are made in China, or that can take our data and go to servers in China."

This is a bold threat. There are, of course, a huge number of such apps - most notably WeChat, owned by China's Tencent, which has already been cited by US secretary of state Mike Pompeo as potentially sharing data with the Chinese government.

And already more than a dozen US multinationals have told the White House that banning WeChat could undermine their competitiveness, while Taiwanese stock analyst Ming-Chi Kuo has warned that a ban could cause iPhone sales to fall by a third.

There's a real danger that these escalating tensions could lead to a full-fledged trade war. 

"We saw a similar situation caused by the Smoot-Hawley Tariffs in the 1930s. The goal was to protect US farmers and other industries that were suffering during the Great Depression by raising tariffs and discouraging import of products from other countries," point out Harvard academics Keman Huan and Stuart Madnick. 

"But, not surprisingly, almost all of the US trade partners retaliated and raised their tariffs. That resulted in US imports decreasing by 66% and exports decreasing 61% making the 'Great Depression' much greater." 

There are ways out of the stand-off

The export controls apply to technologies, rather than companies, and it's conceivable that TikTok could be sold off to the US without those particular features. The buyer would benefit from the app's massive installed base and rocketing growth - and could rebuild it using US-made AI and algorithms. 

And there's also a ticking clock. With the export approval process set to take up to 45 working days, there's a good chance that nothing will have been resolved by the time of the US election at the beginning of November. If Joe Biden wins, the atmosphere - and potential outcome - could be very different.