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A Sword of Damocles for TikTok?

Summary:
There are indications that the US government might force a sale of the Chinese app TikTok to an American firm—perhaps Microsoft. It seems to me that the Australian government has a better solution: Speaking on Tuesday to this year’s virtual Aspen Security Forum, Australian Prime Minister Scott Morrison disclosed that his government had reviewed the national security risks associated the Chinese app and found there weren’t any. There is “no evidence,” he said, “that there is a misuse of anyone’s data that has occurred, at least from an Australian perspective.” That’s also true of the US.  But there are numerous technology experts who suggest that there are real risks that TikTok could engage in future mischief, perhaps even trying to influence US politics: Last year

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There are indications that the US government might force a sale of the Chinese app TikTok to an American firm—perhaps Microsoft. It seems to me that the Australian government has a better solution:

Speaking on Tuesday to this year’s virtual Aspen Security Forum, Australian Prime Minister Scott Morrison disclosed that his government had reviewed the national security risks associated the Chinese app and found there weren’t any. There is “no evidence,” he said, “that there is a misuse of anyone’s data that has occurred, at least from an Australian perspective.”

That’s also true of the US.  But there are numerous technology experts who suggest that there are real risks that TikTok could engage in future mischief, perhaps even trying to influence US politics:

Last year the Guardian reported on leaked documents that detailed how TikTok removed or hid content that mentioned forbidden topics such as the Falun Gong, a spiritual movement banned in China. The result is that some posted videos are not widely available to other users. In effect, TikTok filters out videos that displease the company’s moderators.

TikTok has since said the documents disclosed by the Guardian have been updated and the rules for moderating content vary depending on the country. A Buzzfeed investigation last year found that content about the Hong Kong protests in 2019 was not taken offline, for example.

It’s possible that in its national security review of TikTok, Australia reached a conclusion similar to Buzzfeed’s — that is, there may have been problems before, but the company has taken steps to allow more open use of its product. Even still, there is no guarantee that TikTok won’t change its rules in the future. As Morrison acknowledged, the app’s cord goes back to China.

That’s the risk that the U.S. government is now trying to mitigate. TikTok may conform to Western norms now, as it seeks to expand its market share in places such as the U.S. and Australia. Over time, however, the situation may reverse itself. As TikTok becomes ever more popular among Westerners, their outlook on the world may more closely resemble China’s.

The reason I prefer the Australian approach is that it puts a sword of Damocles over the Chinese firm.  Let’s assume that prior to the 2024 presidential election, TikTok starts intervening in ways that favor the preferred candidate of the Chinese Communist Party?  Or they use TikTok to spy on the US government.  Even though TikTok is owned by a private firm and would probably prefer to stay out of politics, one could imagine the Chinese government forcing some sort of mischief.

In my view, this action would end up being extremely counterproductive, for two reasons.  To see why, recall that the behavior of TikTok will be watched closely by the US government, just as Russia’s interference in the 2016 election has led to increased scrutiny over Russia’s use of platforms such as Facebook.  So the US government would almost certainly discover their actions.  It’s hard to influence 200 million voters in complete secrecy.

Consider what happens if TikTok’s actions are discovered a few weeks before the election:

1. TikTok would be banned from the US, costing Chinese investors many tens of billions of dollars in market capitalization.

2. The scandal would help the most anti-China candidate in the US presidential race.

For these reasons, China would be unlikely to interfere in US politics in such a crude fashion.

Now let’s assume that the US launches a cold war against China, freezing their firms out of the US tech sector.  In that case, the first of the two costs above is no longer operative.  China has much less to lose from interfering in US politics.  But without TikTok would China be able to cause harm to the US?  Yes, look at the Russian actions in 2016.

Indeed it’s probably not a coincidence that it was Russia and not China that engaged in widespread interference in US politics during 2016.  It’s not that the Chinese are too pure to do so—they interfere in Taiwanese politics, and to a lesser extent in other smaller countries.  On the other hand, they have a lot to lose from strong sanctions by the US government, as the US is the largest market for their products.  In contrast, Russia exports very little to the US. (Ironically, Australia is at greater risk than the US.)

So perhaps the best way to keep the Chinese government from misbehaving is to allow them to become deeply enmeshed in the US economy, and then use that close relationship as a sword of Damocles.  Tell TikTok they can stay as long as they don’t engage in any major mischief.

PS.  I say “major mischief”, as every tech company will do a few small things that are objectionable, as when Twitter or Facebook overreact in removing a politically sensitive item.

PPS.  The Australian government has already banned Huawei, so their TikTok decision is not motivated by blindness to the Chinese security risk.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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