Trump's War on TikTok Might Force Companies to Choose Between Doing Business With the U.S. or China
Chinese-owned TikTok is under pressure from President Donald Trump to sell its U.S. operations or face a ban - but China responded last week by implementing new export rules that could give it power to veto the sale.
The Trump administration and Chinese government continue to escalate a trade battle over the sale of TikTok's US operations — and experts say the struggle could define a new normal for US tech companies doing business in China.
Specifically, companies could be forced to choose whether to do business in China or the US as regulations along geopolitical lines make it increasingly costly to access both markets, experts told Business Insider.
Trump previously ordered TikTok's parent company, ByteDance, to sell the app's American operations by mid-September or face a ban in the US. Trump said TikTok's Chinese ownership posed a national security threat and added that the US government should be given a cut of the sale.
By August, Bytedance was reportedly weighing buyout offers from Microsoft, Walmart, and Oracle, among other companies, and a sale seemed imminent. But China may have thrown a wrench in those plans last week, when it announced new regulations giving it veto power over exports of tech products, including proprietary algorithms like the one that powers TikTok.
China's announcement slowed down talks between ByteDance and potential buyers, The Wall Street Journal reported. But according to experts, the mounting escalation from both the US and China to exert control over the TikTok deal could have reverberating impacts on the future of tech commerce between the two countries.
The escalation could hurt US tech companies' profits in the immediate term beyond a TikTok sale, Logan Purk, a senior equity analyst at Edward Jones, told Business Insider. He noted that Trump's ban on Huawei tanked semiconductor stocks globally, and that nationalistic sentiment among Chinese consumers subsequently hurt Apple's sales in the country.
"If this situation deteriorates further ... I think that can start to tip some dominoes, with some more nationalistic stances against US-based products," Purk said.
As the escalation heightens, there's reason to believe neither Trump nor Chinese officials will back down because it's not in their immediate political interests to do so, according to Erik Gordon, a professor at Michigan's Ross School of Business. TikTok and other major companies could bear the brunt of that struggle.
"TikTok should expect to be out of the US," Ross said. "If China blocks a sale, it makes Trump twice as happy — no TikTok in America and no billions going to ByteDance."
Ray Wang, principal analyst and founder of Constellation Research, told Business Insider that companies could be increasingly forced to choose whether to do business in the US or China as operating in both countries becomes increasingly difficult.
"We're making it difficult for everybody who's in between. We're asking people to choose sides, when before it was okay to kind of play both sides. And I think that's really the big difference we've seen over the last 18 months."
The current battle over the ownership of a TikTok's algorithms is largely unprecedented in the history of US-China trade, according to Marshall Meyer, a professor at Penn's Wharton School who studies management in China.
Meyer said the dispute could accelerate the global tech landscape towards a "splinternet" where the web is divided along geopolitical lines. Tech giants like Apple and Google have already carved out parts of their business in China to accommodate regulations there, and further tensions could restrict how they operate.
"China is playing a classic tit for tat — no one quite anticipated this," Meyer told Business Insider. "So we're going to need a new regime for managing global technologies. It's not clear what kind of governance structures are needed to satisfy these conditions. I have absolutely no idea what has to be put in place to make this work."
But there's one economic factor that Meyer says is underestimated as a global force in the future of tech commerce between the US and China: American consumers' emotional connection to tech imports.
"I asked my 16-year-old grandson to tell me about TikTok ... and he said, basically, they have figured out how to appeal to teenagers' need for instant gratification," Meyer said. "People have a real emotional connection to these products. And once you've got that coming from abroad, it raises all kinds of complicated questions."