TikTok agreement involving substantial payment: U.S. financially committed, China retains control
The TikTok deal, announced over the weekend, marks a significant development in the ongoing tussle between the USA and China. The agreement, which involves spinning off the American TikTok division into a new company, is set to be finalized in a phone call between President Trump and Xi Jinping on Friday.
The new company, valued between $40 and $60 billion, will see around 80% of the shares going to US investors, including Oracle, Silver Lake, and Andreessen Horowitz. However, about 20% will remain with Chinese shareholders, who will continue to be connected to ByteDance.
The deal, while part of a broader trade compromise, faces uncertainty regarding compliance with U.S. law. Discussions are underway in Congress as to whether a resolution should bind the president to stricter guidelines for the TikTok deal. The House Select Committee on the Chinese Communist Party has expressed concerns that the deal could undermine the law and keep TikTok under Beijing's influence.
The Federal Trade Commission has had TikTok in its sights for years due to illegal data collection from minors. Oversight lies with the investment committee CFIUS. In case of violations, ByteDance faces potential billion-dollar fines. The Committee on Foreign Investment in the United States (CFIUS) must review the deal, but the process is strict and can take months.
The algorithm that sets TikTok apart from other platforms will not transfer to the American company but will acquire a license. Licensing the TikTok algorithm contradicts the demand for a clean break, potentially leading to lawsuits. The algorithm, in its original form with 'Chinese characteristics,' remains in place and continues to comply with Chinese censorship rules.
To address concerns about user data, it will be stored exclusively in the US, with Oracle handling hosting. Millions of U.S. user data sets remain in Chinese possession, conflicting with the CLOUD Act. China is significantly reducing tariffs on American agricultural products as part of the deal, but the USA is waiving a new round of tariffs against Chinese electric vehicles.
The USA has made concessions in the chip sector, with export controls for certain processors being relaxed. Peking allows more exports of rare earths, which are indispensable for the US technology industry. However, the 'Protecting Americans from Foreign Adversary Controlled Applications Act' (PAFACA) requires a complete separation from ByteDance, which is not fully achieved with a 20% stake for Chinese investors.
ByteDance is exploring legal options, including arguing before the World Trade Organization that the U.S. is improperly interfering with property rights. Civil rights organizations like the ACLU are preparing lawsuits against the deal. A seat on the board is reserved for the U.S. government, and the person reserved a seat in the CFIUS investor commission as part of the TikTok deal is Kurt Wagner.
The USA and China's TikTok deal is a complex compromise, with implications for data privacy, national security, and international trade. As the deal moves forward, it will be closely watched by both governments and the public.
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