Will the US ban TikTok?
Talks of TikTok being banned in the US have been circling for a long time and they have now been reignited, making it a real possibility in 2023.
The Wall Street Journal, citing unnamed sources, reported that the US government has given an ultimatum. Either the Chinese owners of TikTok need to sell their stake, or face a possible outright ban of the platform. A spokesperson from TikTok confirmed the reports to Reuters.
That comes as a bi-partisan bill continues to gain support. If approved, it will introduce new rules for foreign firms deploying their technology on US soil and provide new powers to the Commerce Department, including the right to ban anything that threatens national security. The bill does not directly target TikTok, owned by Chinese firm ByteDance, but is within the crosshairs because of fears that it could harvest data from the 100 million-plus Americans that use the platform.
Notably, the Commerce Department has already acquired some additional powers since former president Donald Trump issued an executive order when he was in power and trying to grapple with rising pressure over China and TikTok. One of the reasons this current bill is gaining the support on both sides of the House is because it would codify these updated powers.
That will also pressure the Commerce Department to make a clear decision whether TikTok is a threat or not. The initial view appears to be that it is. The bill says it must ‘identify, deter, disrupt, prevent, prohibit, investigate, or otherwise mitigate’ any national security risks stemming from technology from a list of countries including China, Russia, North Korea, Iran, Cuba and Venezuela.
‘Instead of playing whack-a-mole on Huawei one day, ZTE the next, Kasperky, TikTok — we need a more comprehensive approach to evaluating and mitigating these threats posed by these foreign technologies from these adversarial nations,’ said Intelligence Committee chairman Mark Warner, who is among those pushing for new regulations to be introduced for foreign-made tech.
Is TikTok getting banned in the US in 2023?
News that the US government has made an ultimatum to TikTok’s Chinese owners is undoubtedly an escalation, although we have not heard anything official from the White House nor the justification behind any such move. If the government sticks to that hard line then a sale looks inevitable, which in turn would allow it to escape a ban. TikTok’s owners could choose to call its bluff and refuse to sell up, leaving the government at risk of upsetting voters and causing disruption for businesses.
Still, a TikTok ban looks more likely than ever right now, it just isn’t guaranteed. Importantly, even if TikTok escapes a ban, these new laws would leave it vulnerable to a swift expulsion at any point in the future so long as it is tied to China and this would cast huge uncertainty over the platform’s survival.
What does TikTok say about a possible ban?
TikTok has long argued against allegations tying it to the Chinese government. The platform has said it stores all data on US users inside the country, that it has never received a request from Beijing for data, and that it would never comply with one that was made - but that has done nothing to allay the concerns in Washington.
More recently, TikTok hit back at the prospect of being expelled from the country and said any ‘US ban on TikTok is a ban on the export of American culture and values to the billion-plus people who use our service worldwide’.
‘If protecting national security is the objective, divestment doesn’t solve the problem: a change in ownership would not impose any new restrictions on data flows or access, ‘ a TikTok spokesperson said in response to reports it needs to sell up or ship out. ‘The best way to address concerns about national security if with the transparent US-based protection of US user data and systems, with robust third-party monitoring, vetting, and verification, which we are already implementing.’
Notably, TikTok CEO Shou Zi Chew is due to appear before Congress on March 23, which is shaping up to be a critical day for the company that could prove highly influential on how politicians view the platform at this crucial time. A spokesperson for ByteDance said earlier this year that the company welcomed ‘the opportunity to set the record straight about TikTok, ByteDance and the commitments we are making to address concerns about US national security’.
What would a US ban mean for the TikTok IPO?
ByteDance has been hoping to take TikTok public through an initial public offering since 2020, but has not pulled the trigger amid a myriad of headwinds. Plans have been on the backburner for some time now as it is clear that it will have problems convincing both US and Chinese regulators about its listing.
With headline-grabbing valuations of around $50 billion circling around for TikTok, markets have eagerly awaited for it to go public for years. ByteDance as a whole is thought to be worth considerably more as it owns an array of other platforms, including but not limited to ‘Chinese TikTok’ Douyin, content search app Toutiao, Indian app Helo and collaboration suite Lark.
You can find out more in Everything You Need to Know About the TikTok IPO.
Notably, the Committee on Foreign Investment in the US said last year that it recommended ByteDance spins-off and separates its US TikTok arm to address the concerns about where data is stored and who controls it. News that it is asking for Chinese owners to sell up leaves the door open to a TikTok spin-off, but a direct sale looks more likely if this were to happen.
For now, a ByteDance or TikTok IPO looks very unlikely in this environment.
Notably, any buyer that steps forward to take over the Chinese stakes in TikTok will need to be American. Notably, there were talks of a US company, including Oracle, coming in and acting as a ‘trusted technology provider’ to oversee US operations of TikTok when Trump was in charge but this idea swiftly collapsed. An array of other businesses, from Microsoft to Alphabet, have been speculated as potential suitors should US TikTok be put up for sale.
What stocks would benefit from a TikTok ban?
A TikTok ban would provide a huge boost to US tech companies.
TikTok has weighed heavily on the minds of executives at US rivals for years. As the fastest social media platform to ever reach 1 billion global users, companies like Meta, Snap and Youtube have been stepping up the fight for user’s attention. For example, Meta has admitted that TikTok, known for its short-form video model, has reduced engagement on its own platforms and has tweaked its own products, such as the switch to Reels, in direct response to the success of its Chinese rival.
Over 60% of all digital advertising budgets in the US funnels through to social media platforms and TikTok has been the fastest-growing player, according to data from Sensor Tower. To provide context on how big a player TikTok is, advertisers spent around $1.6 billion on the platform in the third quarter of 2022 alone. That represents almost 7% of all the money spent on digital ads in the US during that period.
An outright ban would therefore leave a huge hole as advertisers try to reallocate their marketing dollars. There is a chance that they decide to pullback on spending rather than spend it on other platforms, but there is a good chance that the marketing dollars will follow wherever the attention and engagement shifts if Americans lose access to TikTok.
That means US social media platforms are poised to benefit. Analysts at Bloomberg Intelligence said YouTube, owned by Alphabet, ‘might gain the most user market share among social media peers’ if TikTok was banned in the US, while ‘Meta Reels and other platforms such as Snap and Roblox could also see an engagement boost’.
Notably, streaming companies like Netflix and Disney could also benefit. Both giants have launched their own ad-supported tiers, opening up an entirely new way for businesses to reach customers as they cut the cord and move away from linear TV. Streaming services already account for about 15% of digital marketing budgets and this is likely to grow as the biggest players gain momentum.
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