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The video-sharing app TikTok was already under US scrutiny when users pranked President Donald Trump’s campaign by pretending to reserve thousands of tickets for a June re-election rally in Oklahoma.
For the hardliners in the Trump administration who wanted a tougher stance toward Beijing and saw the Chinese property application as a threat to national security, it was the perfect time to strike. The president, furious over the Covid-19 pandemic and embarrassed by the empty seats at his campaign event, agreed.
By linking TikTok to Beijing’s handling of the raging coronavirus outbreak, Trump in July threatened to ban the app used by 100 million Americans unless China turned over control of the company, its algorithms and data to the United States. Going back to his New York real estate days, he also insisted that the United States government be compensated in the process.
The deal Trump signed on Sept. 19, hours before the Sept. 20 deadline, does almost none of that.
Trump said he wanted the American part of the business to be owned by an American company. But China’s ByteDance Ltd remains the majority shareholder in a new American startup that will include new investments from Oracle Corp and Walmart Inc in a future fundraising round.
Trump said he wanted the data to remain in American hands, for national security reasons. And he did it: Oracle becomes TikTok’s cloud provider, taking responsibility for hosting user data on servers within the US But the algorithm itself, what makes TikTok TikTok, and that Critics warn that it may sway public opinion if its recommendation engine is abused – it will continue to belong to ByteDance, so national security concerns remain, experts said.
And the government payment? That turned into a loosely worded promise of new tax dollars and a new educational initiative to teach kids to read and math online.
“As for the so-called US $ 5 billion (RM20.56 billion) tax on the United States Treasury, it refers to an estimate of corporate income tax and other taxes that TikTok will have to pay in the next years as part of its business development. ” ByteDance said in a statement on September 21 “TikTok is confident in its future, but the actual amount of the tax will have to be determined according to the actual state of the business and US tax structures.”
Still, Trump said he was satisfied.
“They are going to establish a very large fund,” Trump said Saturday. “That is the contribution I have been asking for.”
The president won a partial victory. He said the new company will be based in Texas and promised to hire 25,000 Americans, though no breakdown or schedule for hiring was provided. The board will be led by Americans. More importantly, the measure ends a crisis six weeks before the US election, ending one of the most extraordinary episodes in a presidency that has been filled with them.
“It’s big business for America,” Trump said Saturday. “It will be a new company, it will have nothing to do with any foreign land, no foreign country, it will have nothing to do with China, it will be totally safe, that will be part of the deal. “
Statements like these are leading skeptics to say that Trump singled out TikTok for political reasons, either because of the perception that its users don’t like it, or to hit China, and that he accepted a deal that met some of its terms. for the same reason. They add that the president’s direct involvement and acceptance of a deal brokered by a key ally, Oracle founder Larry Ellison, reeks of political interference.
“The government should be in the business of citing national security concerns, but it should not be in the business of negotiating a secret agreement with an American company,” said Ari Lightman, professor of digital media and marketing at Carnegie Mellon University. . “You have to ask yourself: why didn’t they take the right steps?”
For the national security hawks, a key issue from the start was Chinese control of US user data. Traditionally, software and applications developed in the United States were exported abroad; think of Facebook or Twitter. TikTok was the first Chinese app to become so popular in the US, giving Beijing the opportunity to project the kind of “soft power” abroad that it so longed for.
For Trump, it was more personal, according to a person familiar with the matter. The White House was furious that TikTok users may have encouraged people to request, but never use, tickets for the June 20 rally in Tulsa, Oklahoma. The rally was billed as Trump’s first major event after months of shelter from the coronavirus, and the campaign expected tens of thousands of people to attend. In the end, about 6,000 people attended and Trump was greeted by rows of empty seats.
At the same time, an app security review was underway. The scrutiny stemmed from ByteDance’s 2017 acquisition of Musical.ly, a lip sync app based in China but whose majority of users were in the US was dubbed on TikTok. ByteDance did not report the deal to the US Foreign Investment Committee for approval, but two years later, the panel contacted ByteDance.
The problem lasted until 2020 as tensions between Washington and Beijing mounted and the Covid-19 pandemic initially ruled out by Trump began to kill tens of thousands of Americans. Cfius opened a formal investigation into the acquisition in June.
The Cfius investigation was in line with much stricter investigations against China under Trump. It previously blocked three acquisitions by Chinese investors, most by any president, while many other deals collapsed after the committee raised national security alarms.
It was concerns about personal data, for example, that led Cfius last year to force the Chinese owner of the dating app. Grindr sell the business.
With a September 20 deadline that Trump set for a looming deal, Treasury Secretary Steven Mnuchin got to work. Last week, it seemed that a resolution had been found. The Treasury sent a term sheet to ByteDance outlining the conditions that were ultimately approved: four out of five people on the board would be Americans, including a representative from Walmart, along with a national security committee led by an American with cybersecurity credentials. to monitor any issues that arise.
Additionally, the parties agreed that the new company, which Mnuchin dubbed TikTok Global, would submit an initial public offering next year. The company will seek a valuation of US $ 60 billion (RM246.81 billion), according to a person familiar with the matter.
That seemed to persuade the most important participants on the Cfius executive committee. Mnuchin and Commerce Secretary Wilbur Ross were always on board. But even Secretary of State Michael Pompeo, who had long warned of the dangers of China exploiting US user data, eased his own opposition. Several Republican senators approached who had also expressed their initial opposition.
Questionable math is being supported to get around Trump’s demand that US investors have majority control of the company. Bytedance will retain an 80% stake in the new company. But because existing US investors have a 40% stake in ByteDance, counting new investments from Oracle and Walmart, as well as other US minority shareholders, the Trump administration claimed that the United States is 53% owned.
Then there are the clear political nuances associated with new investors. Oracle CEO Safra Catz was on Trump’s transition team and was considered a potential candidate for top positions, including national security adviser and president of the World Bank. The company’s founder, Ellison, hosted a fundraiser for Trump and met Pompeo along with other tech titans in January.
Credibility questions
It’s not just about Oracle: Sequoia Capital, a major investor in ByteDance that helped negotiate the TikTok deal, will also retain its stake in the Chinese company. Sequoia managing partner Doug Leone donated $ 50,000 last year to Trump Victory, which splits contributions between the campaign and the Republican National Committee. He also gave the same amount that year to America First Action, a super-PAC that supports Trump, although a familiar person said Leone does not have a personal relationship with the president.
“There are reasons to be skeptical about President Trump’s own motivations for banning the app, given the perverse political incentives at play,” said Elsa Kania, associate researcher at the Center for a New American Security. “It seems that different rationales and motivations come into play with varying degrees of credibility.”
Sequoia officials declined to comment. Oracle officials did not immediately respond to a request for comment on whether political factors gave them an advantage in obtaining approval for the deal. White House officials did not immediately respond to a request for comment on that issue or the role the Tulsa rally played in motivating Trump to act.
Security experts said the original source of concern about TikTok has yet to be resolved, even as Oracle and the US board have information about the app’s algorithms and data.
“These sound like great political talking points,” said Michael Coates, CEO of Altitude Networks and former director of information security at Twitter. “The general idea that this protects national security is quite challenging. There are many cases in which American companies pool data and put national security at risk. Choosing some foreign company that does this and targeting them will not help. “- Bloomberg
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