CEO of TikTok falls flat, forcing him to head to the US courts

Shou Chew, TikTok CEO, could not convince Congressmen on Thursday. Nevertheless, the US legal system is where the more consequential battle to keep the short-video app from being fined or outlawed will likely take place.

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Over the course of more than four exhausting hours, legislators alternated between grilling Chew with questions regarding China's ability to access millions of Americans' data as well as the ownership of TikTok by Beijing-based ByteDance Ltd. Chew did not allay those worries, according to experts who observed the hearings. He once responded, "It's a tough matter," when asked if ByteDance's Chinese developers have access to American users' data.

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This makes things harder for TikTok's parent. Internally, TikTok executives have explored leaving ByteDance, but China said this week that it would vehemently oppose a forced sale. That echoed earlier reluctance to let even a tiny amount of ByteDance's proprietary content-recommendation software fall into foreign hands.

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TikTok didn't need to bother, though. At a time of escalating US-Chinese tensions and increasing scrutiny of large technology platforms, it's unlikely that there would be a long list of buyers wealthy or willing to take on a US political hot potato worth $50 billion. This is according to Caitlin Chin, a fellow at the Washington-based Center for Strategic and International Studies.

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In order to follow through on its threats, the government would need to silence TikTok in the US. Judges have historically shown a lot of reluctance to shut down even a Chinese-owned social media platform out of concern about the precedent it would set regarding free expression. The Trump administration's attempt to halt the viral video phenomenon was resisted in 2020 by TikTok. This ended the first US effort to impose influence over ByteDance's most important work.

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"I do believe Tiktok has a very strong case simply because the First Amendment and the legal standards under the First Amendment are so strong. The government has established that any restriction on speech is narrowly limited and achieves a compelling government purpose," Chin stated. About the hearing, "I did not anticipate it to be so gruesome to witness. We were aware from the beginning that lawmakers arrived with predetermined opinions.

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Not just geopolitics, it depends on the result. Several of the largest financial institutions in the world, including Temasek Holdings Pte., Sequoia Capital, and SoftBank Group Corp., are supporting ByteDance. In 2022, TikTok alone itself made an anticipated $10 billion in income.

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The American public is still split on whether TikTok is just a platform for amusing teenagers to lip sync and dance to popular music or a gateway through which Beijing may influence the lives of its more than 150 million members. The fact that Chinese law gives the government the ability to demand data from internet businesses on demand if considered in the interests of national security highlights the latter worry.

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Because of this, TikTok, which paved the way for other Chinese-owned disruptors like fast-fashion retailer Shein, has evolved into a benchmark for rising US-Chinese hostilities. The function dates back to the Trump administration, which tried in vain to stifle WeChat from Tencent Holdings Ltd. as well as TikTok on comparable grounds.

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Project Texas, as Chew termed it, is TikTok's proposed magic bullet solution. According to Chew, the firm intends to store American data in the US with a US team. Yet on Thursday, it seemed like no one in Washington was listening to that argument. Even the notoriously secretive Committee on Foreign Investment in the US, which hasn't even announced that it is studying TikTok, issued a statement in the middle of Chew's testimony with a general warning about data protection. ByteDance representatives did not respond to comments.

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The TikTok controversy involves algorithmic influence as well as data security and privacy, which is a problem that affects all social media platforms, according to Jiang Zhaokang, managing director of the DC-based law firm GSC Potomac, which specializes in trade and supply-chain legal services. "Project Texas really doesn't deal with that worry."

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Even if a TikTok sale were acceptable to Beijing, it would be difficult to find a buyer who would be liked by both Party insiders and the country's increasingly hawkish lawmakers. Microsoft Corp., Oracle Corp., and even Walmart Inc. were among the potential suitors in 2020 when Trump attempted to orchestrate a purchase. Yet since then, TikTok has only increased in value and market share as several of the biggest American digital firms have come under antitrust scrutiny from the Biden administration due to their business methods and previous acquisitions.

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Washington and Beijing must consider the divided public. After Chew's testimony on Friday, many Chinese turned to social media, alternatively criticizing ByteDance for caving to US whims and praising Chew for remaining composed under pressure.

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Prior to the hearing on Tuesday, Chew used TikTok to mobilize supporters of the platform in support of its defense. In his article, he requested that users make comments outlining all the reasons why they adore the app as well as what they would tell American government officials. Tens of thousands of comments have been left on the post, the vast majority of which are in favor of the program.

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"The question is what is the alternative, especially since a ban will undoubtedly be contested in court on First Amendment grounds? Any sale is not going to be clean and it's not going to be easy if it happens at all," Chin said. "I honestly don't see a nice, tidy answer to this."

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In order to convince a judge that a forced sale is either unlawful or deprives people of their livelihoods, TikTok may ultimately need to take its case all the way to the US Supreme Court, according to Alex Capri, a research fellow at the Hinrich Foundation based in Singapore. He called Chew's presence a "train wreck" and speculated that the judges would decide to focus on the numerous reports of China cyber-attacks on American federal entities.

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The hearing might hasten the passage of bipartisan legislation that would grant the Biden administration greater legal authority to examine the technology that is owned by foreign entities and to take measures to reduce any risks to national security, including a US ban. According to the White House, these legal resources are necessary for any lawsuit against TikTok to succeed in court.

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On Thursday, US Treasury Secretary Janet Yellen joined the debate by claiming that an increasing number of circumstances are causing her to have concerns akin to those sparked by the app.

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Capri warned that "this could extend to other Chinese platform firms in addition to TikTok."

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In fact, the final result might have wider ramifications for other Chinese apps that serve the American market. Shein and Temu, a recent launch from PDD Holdings Inc., are two of the most profitable.

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"If what we're concerned about is Chinese-backed companies being on tens of millions of American phones, including members of the military, and privacy concerns, data concerns, and misinformation concerns — that doesn't just apply to TikTok," said Gina Raimondo, secretary of commerce, in an interview with Trade Algo this month.