Updated: Dec 8, 2020
G'day, and welcome to edition 21 of Mundo. In this edition I explore the growing complexity of foreign investment into the U.S. technology sector, as it navigates growing national security sensitivity, commercial rivalry, and politicisation from President Donald Trump. I also share Farnam Street's "Spiral of Silence", in understanding how public opinion can suddenly shift, and how it can be warped by minority views.
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Approximate reading time: 4minutes.
TikTok, time's up?
News emerged on September 19 that a deal for TikTok's "sale" to Oracle and Walmart had drawn President Donald Trump's approval. As it stands, Oracle, an American software company, will run TikTok's global operations ex-China as a separate, U.S.-based company. The sale was provoked by national security concerns following an investigation by the Committee on Foreign Investment in the United States (CFIUS), and an executive order from Trump. Yet by September 22, Trump appeared to waver on his approval, facing criticism that the deal won't neutralise national security concerns.
The details surrounding the ultimate control of the new TikTok spin-off are portrayed differently ByteDance and Oracle. Whether Trump ultimately allows the arrangement to proceed hangs on his own flippant decision making. However it's clear that dealmaking in the U.S. tech sector is increasingly subject to the interplay of national security concerns, commercial interests, and Trump's political calculus.
The national security concerns are legitimate, as meticulously outlined in a recent Australian Strategic Policy Institute report on TikTok and Tencent. They centre on two issues. First, ByteDance's ownership of TikTok obliges the firm to pass along collected data to the Chinese Communist Party on request. Second, without oversight of TikTok's core algorithms that filter user content, the app could also act as a tool for Chinese state-sponsored censorship, suppression, disinformation and manipulation of captive audiences.
Some of the biggest amplifiers of these national security concerns are TikTok's American rivals, led by Facebook. TikTok's issues entered Washington dialogue in 2019 following meetings and speeches from Facebook's Mark Zuckerberg with Donald Trump and D.C. lawmakers. For the American social media giant, sounding the alarm on TikTok's national security challenges deflects the glare of regulators, and shifts the story away from growing cynicism over its controversial role in political discourse. Shortly after Zuckerberg's message filtered through U.S. Congress, a CFIUS investigation was launched.
However, the most significant factor in the Trump era is the president's own overt politicisation of national security and commercial interests. Trump has long shown a preference for bluster over substance, where the optics of a "good deal" and a short-term political boost dominate the finer details - even if they contradict the original motivation.
This played out over the various iterations of the U.S.-China trade deal, his retreat from ZTE tariffs, his made-for-TV meeting with North Korea's Kim Jong-un, and countless other cases.
What this all means
Walking back from his original insistence that ByteDance must relinquish control of TikTok opens him to accusations of being weak on China. As it stands however, Trump will allow the Oracle deal to proceed, countering the criticism of experts of being soft on China by reiterating the headlines of the deal - "I took TikTok from China" to his political base, and pursuing other firms instead.
This is already happening. Trump's initial executive orders also included a directive to restrict Tencent's WeChat app last weekend, which has (so far) been halted by a federal court. There are also rumours that CFIUS is now investigating Tencent's 2011 and 2012 acquisitions of U.S. gaming firms Riot Games and Epic Games.
For businesses and investors, Trump's blessing of the TikTok-Oracle deal only further confuses national security concerns and the president's political calculations. Chinese investment has already declined sharply in the past 18 months in response to this political uncertainty, particularly in the technology space.
The risk remains, however, for earlier acquisitions. Due to a law passed in 2018, CFIUS has the power to review transactions that have already closed (as was the case with ByteDance's 2017 acquisition of Musical.ly, renamed as TikTok), even if they were minority investments from the foreign investor.
Which firms could be next? Actors to watch for indications are:
CFIUS - although they rarely publicise what investment proposals are under review
Statements from Congressional China hawks such as Marco Rubio
The lobbying activity of U.S. tech firms
And, of course, Trump himself
Trump is the real wildcard in this scenario, and he will remain sensitive to the reaction of the TikTok-Oracle deal while mulling further targets-by-tweet.
Companies such as Zoom have recently engaged Trump's former assistant for National Security Affairs H.R. McMasters, and another seasoned government relations manager to smooth relations in D.C.'s corridors of power. Zoom drew the ire of lawmakers in July over censorship issues.
Go deeper with this recent China Talk podcast.
The spiral of silence, and the distortions in public discourse
Farnam Street recently wrote on the "spiral of silence", where views outside the norm are rarely expressed, for fear of social consequences. Once the view is expressed by well-linked individuals, it often proliferates into the norm.
We've seen the implications of this in our societies with political polarisation in recent years. I'd say one of the biggest consequences of Trump's presidency has been his normalisation of minority and extreme views, allowing them to sprout, and then proliferate without public condemnation. His refusal to condemn white supremacists in last night's presidential debate is the latest example of this. While still minority views, by entering the mainstream, they draw the perception of normalcy and respectability, and have a disproportionate societal impact. Be aware that social discourse is often warped by this spiral of silence, and the disproportionate traction of minority views.
Thanks to everyone who has emailed me with their thoughts and ideas. Keep them coming! Forward this along to others who might find this an interesting read. Stay calm, think of others, stay healthy. Mitch