President Donald Trump signed an executive order on Thursday banning transactions with ByteDance, the parent company of popular app TikTok. The White House also announced that he signed a similar order banning transactions with WeChat, the messaging app owned by Tencent that is ubiquitous in China, but has a much smaller presence than TikTok in the United States, where it is used mainly by members of the Chinese diaspora.
Both orders will take effect in 45 days, but (and this is a key point) the executive orders are vague and confusing because they say Secretary of Commerce Wilbur Ross will not identify what transactions are covered until then. It’s also still uncertain how the executive orders will affect the apps’ operations in the U.S. or Tencent’s other holdings.
Though the order was not phrased to ban the two apps directly, the government may have other means to restrict them. Just yesterday, the Trump administration announced its plans to purge “untrusted” Chinese tech services, which could reasonably include WeChat and TikTok, under the Clean Network program.
— Andrew Feinberg (@AndrewFeinberg) August 7, 2020
A Tencent spokesperson said the company is reviewing the executive order to get a full understanding.
TikTok hit back saying that the executive order was “issued without any due process” and would risk “undermining global businesses’ trust in the United States’ commitment to the rule of law.”
The orders cite the International Emergency Economic Powers Act and the National Emergencies Act. It is important to note that naming the apps’ operations in the United States as a national emergency is a highly unprecedented act and the legality of the orders will likely be challenged. ByteDance is currently pushing back against the Indian government’s July decision to ban TikTok along with 59 other apps; like the U.S., India also cited national security concerns around user data collection.
Microsoft announced over the weekend that it is in negotiations to buy TikTok from ByteDance, naming September 15 as a deadline for negotiations. The order would take effect shortly after the deadline set by Microsoft for the deal. ByteDance reportedly agreed to give up its entire ownership in the app even though it had previously wanted to maintain a minority stake.
Trump’s executive order on ByteDance said that “the spread in the United States of mobile applications developed and owned by companies in the People’s Republic of China…continues to threaten the national security, foreign policy, and economy of the United States. At this time, action must be taken to address the threat posed by one mobile application in particular, TikTok.”
In 45 days, transactions by any person or property subject to U.S. jurisdiction with ByteDance or any of its subsidiaries will be prohibited “to the extent that they are permitted under applicable law.” The order claims that TikTok’s access to user data, including location, browsing and search histories, “threatens to allow the Chinese Communist Party access to American’s personal and proprietary information–potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.”
Trump announced at the end of last month that he planned to ban TikTok through the use of an executive order. The president and government officials, including Secretary of State Michael Pompeo, have made escalating comments over the past few weeks alleging that TikTok is a threat to national security. While TikTok is owned by ByteDance, the Beijing-based company (which also operates a Chinese version of the app called Douyin) has taken steps to distance TikTok from its Chinese operations, and claims that its data is stored outside of China.
Potentially sweeping Tencent ban
Trump’s executive order on WeChat was less expected, but not a complete surprise because Pompeo named the messaging app earlier this week when he said Trump was planning to take action “shortly” on TikTok and other Chinese companies. Like ByteDance, Trump claims WeChat’s data collection is a national security threat and may give the Chinese Communist Party access to user information. The order also cites WeChat’s censorship of material deemed politically sensitive by the Chinese government.
The scope of the order appears to reach beyond WeChat, restricting U.S. companies from conducting transactions with Tencent Holding as well as its subsidiaries.
The big mystery is how the Secretary of Commerce will define “transaction” in 45 days. Trump might have just inadvertently dealt a blow to some of the biggest tech and entertainment companies in the U.S. backed by Tencent. The Chinese giant is often compared to SoftBank for its extensive investment footprint. What kinds of financial agreements are there in the majority stake cases? Dividends? Bonuses payable to board members?
Over the years, Tencent has taken stakes in Spotify, Snap, Reddit, Tesla, Warner Music, Universal Music and lucrative games makers in the U.S., including Fortnite maker Epic Games and Riot Games, the studio behind League of Legends.
(The Los Angeles Times reports a White House official clarified that the WeChat executive order only applies to transactions related to WeChat, not ones related to other Tencent holdings. But that is unclear from the language of the order).
Microsoft declined to comment. TechCrunch has also contacted the White House.
The story was updated on August 7, 2020 to correct the title of Wilbur Ross.