Banning TikTok Is a Bad Idea said Barrons Subscription

Barrons Subscription has informed, rising anti-China sentiment is increasing the likelihood of a TikTok ban, which has been gaining momentum in Washington for some time. Last year, Congress passed Sen. Josh Hawley’s measure that banned TikTok, owned by Beijing-based ByteDance, on federal government devices. Last week, the Republican members of the House Foreign Affairs Committee passed the DATA Act, on party lines, which would effectively ban TikTok in the U.S.

Then on Tuesday, Sens. Mark Warner and John Thune introduced the Restrict Act, which would give the U.S. Commerce Department new authority to ban or block TikTok and other communication apps owned by companies based in certain foreign countries.

The Restrict Act is especially notable as it has the bipartisan support of 12 senators across the political spectrum and the backing of the Biden administration, which increases the chances of the bill becoming law.

Investors have already started to price in the possible ban of TikTok. The most obvious beneficiaries are other large U.S. social media apps. Shares of both Snap (ticker: SNAP) and Meta Platforms (META), the parent company of Facebook and Instagram, have handily outperformed the stock market this month. If a ban happens, those two stocks could continue to rise.

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But everyone needs to take a step back. Shutting down a social media app used by nearly one in three Americans would be unwise—and unprecedented. There is a better way.

The two main arguments lawmakers use against TikTok are the possibility the Chinese government could access Americans’ user data for surveillance purposes and the prospect China could manipulate TikTok’s algorithm to propagate or suppress particular political messages.

On the privacy front, Congress is employing a double standard, given its otherwise lackadaisical approach to data privacy and its lack of legislation in the area. If foreign governments want sensitive user data, they can easily acquire it from data brokers that readily sell private information pulled from the internet, not to mention from pools of consumer data leaked in major corporate cybersecurity breaches over the years.

TikTok has reiterated that it does not share user data with the Chinese government. “We appreciate that some members of Congress remain willing to explore options for addressing national security concerns that don’t have the effect of censoring millions of Americans,” TikTok spokeswoman Brooke Oberwetter said to Barrons Subscription in a statement. “A U.S. ban on TikTok is a ban on the export of American culture and values to the billion-plus people who use our service worldwide.”

I wonder, too, if politicians have spent any time using TikTok. As an avid user of the video app, I haven’t seen any overt political messages or agendas. I mainly thumb through clips of comedy, food, and basketball highlights. Millions of people use TikTok because it is the best app for discovering entertaining, relevant content.

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Some may question the significance of shutting down such an app. Would we really miss dancing, lip-syncing, and funny pet videos? asked Barrons Subscription.

But fairness matters. The U.S. economy is the envy of the world because of its core tenets of free markets, robust legal frameworks, and capitalism. The protections against arbitrary seizure attract investment and enable risk-taking. And vigorous open competition between companies drive innovation forward.

Banning a company based on hypotheticals—preying on fear and paranoia without compelling evidence—would be a terrible precedent. It would feed the perception that the U.S. can retroactively change the rules when a foreign competitor wins in the marketplace, chilling future investment. And it opens the door for other countries to ban U.S. apps unilaterally to advance their own domestic agendas.

Then there is the prospect of protectionism and a nationalistic backlash. China could strike at American companies within its own borders. Apple AAPL +0.84% generates about 20% of its revenue in China. That revenue would be at risk in an economic tit for tat.

There is still a solution that could mitigate national security concerns without collateral damage to TikTok’s users and investors: force TikTok to spin off its U.S. operations or sell it to an American company.

This was an option the Trump administration initially pursued for TikTok in 2020, at one point gaining the interest of Microsoft MSFT –0.18% (MSFT) as a potential buyer.

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The same policy would still make sense and represents a good compromise. With Western ownership, politicians can be assured data and algorithms would have proper oversight against security risks—something Microsoft promised as a part of its prior proposal. Meanwhile, social media influencers and small businesses that rely on TikTok for their livelihoods wouldn’t be collateral damage and ByteDance and early investors would be adequately compensated for their innovation and success.

Altimeter Capital founder Brad Gerstner, whose firm is an investor in TikTok-parent ByteDance and also owns a position in Meta Platforms META +0.25% , is amenable to the idea. “I am generally in support of free markets but if the U.S. Congress determines that TikTok is a threat to our national security in any real way then they should force a sale or remediation that would guarantee that this threat is removed,” he wrote in an email.

Microsoft didn’t respond to a request for comment on whether it would still be interested in acquiring TikTok. TikTok declined to comment on a potential spinoff or sale.

The U.S. remains a beacon of capitalism, and it needs a foreign policy to match. The world is watching.