Tuesday, May 28, 2024

Focus sharpens on China’s tech – Roll Call

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The House-passed measure designed to force China’s ByteDance to divest TikTok is only part of an expanding effort aimed at curtailing China’s tech ties to the United States.

As lawmakers were voting on the TikTok measure on March 13, members of a House Energy and Commerce subcommittee were marking up three such bills. They would require officials to identify routers, modems and other communications devices that may have tech content from China, identify telecom entities that have ownership ties there and prohibit the use of drones made by Chinese companies.

The Chinese Communist Party poses “a significant threat to American security and economic leadership,” Rep. Bob Latta, R-Ohio, chair of the House Energy and Commerce Subcommittee on Communications and Technology, said before the markup. “China is aggressively trying to overtake the United States as the global leader in communications and technology.” 

The bills, which also target entities and technologies from Russia, Iran and North Korea, countries that are considered foreign adversaries, were favorably reported to the full committee on unanimous votes.

President Joe Biden has also moved to block the export of advanced semiconductor chips to China in an effort to thwart Beijing’s advances on artificial intelligence systems. And the administration is examining ways to squeeze off the flow of U.S.-backed venture capital to China’s tech sector.

Taking aim at Chinese technology has been a go-to move during an election year in which both parties are keen to demonstrate their tough stance on the country, said James Lewis, director of the technology and public policy program at the Center for Strategic and International Studies. 

“There’s a fair degree of hysteria to all of this, but the way to think about it is, we are doing to China what China did to us,” Lewis said in an interview, referring to the banning of U.S. social media apps beginning in 2010. Facebook, Google, YouTube, Instagram and WhatsApp have been blocked in China because the companies wouldn’t follow Beijing’s rules on data collection and sharing.

The Chinese are keen to “control what they would call the information space, so it’s hard for them to object” when the United States is attempting to do the same with TikTok, Lewis said. 

That didn’t stop China’s Foreign Ministry spokesman Wang Wenbin from objecting to the House measure. At a news conference in Beijing last week, he said the bill put the United States “on the opposite side of the principle of fair competition and international economic and trade rules.” 

The measure would require TikTok’s Chinese owner ByteDance to divest its U.S. subsidiary within six months of the law taking effect or the U.S. government could force app stores and websites to stop hosting the app. The bill also would give the president the authority to deny other social media apps owned and operated by foreign adversaries access to U.S. users unless they sever ties to their foreign owners. 

No hurry in Senate

It’s unclear whether, or how quickly, the Senate will act on the measure, with Majority Leader Charles E. Schumer, D-N.Y., and other lawmakers indicating there’s no rush.

Schumer has in the past backed the idea of a U.S. company buying TikTok. “A U.S. company should buy TikTok so everyone can keep using it and your data is safe,” Schumer said in an August 2020 post on what was then Twitter.

“With TikTok in China, it’s subject to Chinese Communist Party laws that may require handing over data to their government,” Schumer continued. “A safe way must be found for TikTok to continue.” 

Despite the doubt about whether the Senate will act, potential buyers are already lining up.

Former U.S. Treasury Secretary Steven Mnuchin, who heads Liberty Strategic Capital, told CNBC last week that he was assembling a group of investors. 

Lewis noted, however, that the price tag could be steep — perhaps as high as $400 billion based on China’s assertion that the sale of TikTok’s recommendation algorithm would be a technology transfer. Beijing controls the decision whether to export the algorithm, “so they get a vote” on the price, he said.

The TikTok app is based in the U.S., but ByteDance might be able to circumvent any U.S. ban if it moves the entity overseas, say to Ireland or Abu Dhabi, while keeping it available to U.S. users, Lewis said. 

The European Union’s recently passed Digital Markets Act aims to dilute the power of the app stores operated by Apple Inc. and Google LLC by allowing users to download any app even if it’s not offered on the device’s app store. Apple said this month that it will comply with the change. That could mean users, even in the United States, could still access TikTok, Lewis said.

Beijing also may put pressure on U.S. tech companies that have deep ties to China.

A report issued in February by Georgetown University’s Center for Security and Emerging Technology found that Apple, Tesla Inc. and Amazon.com Inc. could face pressure if China decides to retaliate in the context of a conflict in Taiwan. 

“Analysis of revenue, investments in manufacturing facilities, and supplier networks suggests that Apple and Tesla, and to a lesser extent, Amazon, may be particularly susceptible to Chinese economic pressure and coercion amid a potential Taiwan crisis,” said the report titled “Which Ties Will Bind?: Big Tech, Lessons from Ukraine, and Implications for Taiwan.”

Similar pressures may apply in the TikTok fight.

“Suppose the Chinese said, ‘OK, TikTok was forced to divest, now it’s your turn’ to companies like Apple and Microsoft,” Lewis said. That would cause “a big break in the intertwined economic relationships” between the two countries.

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