Despite National Security Concerns, the Chinese app Continues to Chip Away at Silicon Valley’s Market Share.

By Meredith Wallace

It’s no secret that TikTok is a social media heavyweight and one of the most popular platforms in the world. However, the ByteDance-owned app has kept its true objectives secret from the public. In the last few months, the media and government have uncovered evidence that the Chinese company is using the app to surveil U.S. citizens, influence elections, and push the Chinese Communist Party (CCP) agenda.

In addition to these public revelations, several senior government officials publicly called attention to related national security concerns in recent weeks – from Senators to the Director of the FBI to the Secretary of Treasury. Separately, the U.S. military and multiple states have banned the app from government devices.

Despite the mounting concerns and criticism, TikTok is not losing users or revenue – quite the opposite – and U.S. social media is losing share of the market it invented. Now the Committee on Foreign Investment in the U.S. (CFIUS) is set to make a historic decision about its fate which could set the tone for great power competition in tech.

TikTok proved too big to be held accountable in past attempts to ban or divest it.

In 2020, the Trump administration released an Executive Order (EO) on Addressing the Threat Posed by TikTok. CFIUS, which conducts national security reviews of foreign company’s deals, ordered ByteDance to divest from TikTok. Then, Trump attempted to ban the app completely in the U.S. unless TikTok spun off from ByteDance but faced challenges in court.

When the Biden administration came into office, the Trump EO was revoked. The administration instead called for a review of apps designed and developed in “the jurisdiction of a foreign adversary.” This put the divestiture plans on hold.

In September 2022, The New York Times reported that CFIUS and TikTok reached a preliminary agreement on safeguards to allow its continued operations. However, many law makers and senior government officials remain unsatisfied with the terms and are renewing a push to ban the app altogether.

Government officials, media outlets, and advocacy groups have renewed security concerns.

In recent months, lawmakers and senior government officials have renewed national security concerns over TikTok concerns publicly. Senate Intelligence Committee Chairman Mark Warner (D-VA) said the app posed privacy, security, and foreign influence concerns to Americans. The FCC Chairman Brendan Carr sent a letter to the CEOs of Apple and Alphabet (Google), asking them to ban the sale of TikTok in their respective app stores.  FBI Director Chris Wray has repeatedly warned of TikTok’s potential to be used as a tool for Chinese influence operations, and laid out his concerns in a testimony before the House Homeland Security Committee. And Treasury Secretary Janet Yellen warned it poses “legitimate national security concerns” to the U.S. 

These public statements come on the heels of multiple media investigations that revealed security concerns related to China’s influence over the app and its intent to use it as a surveillance and influence tool. Over the summer, Buzzfeed revealed that leaked audio from internal TikTok meetings proved that U.S. user data was being accessed from China. For years, TikTok maintained that information gathered about U.S. users in the U.S. is stored in the U.S., rather than China.

In July, Gizmodo reported that analysis of TikTok’s source code shows that the app requests access to far more sensitive information on a user’s phone than a social media company should need. That data includes calendar, contact lists, and photos.

In October, a Forbes investigation revealed that ByteDance planned to use TikTok to monitor the physical location of specific American citizens, without the users’ knowledge or consent. As a result, advocacy group Public Citizen sent a letter to ten legislative leaders, the Federal Trade Commission, and CFIUS to inquire about the report’s findings and open full investigations. The group expressed concerns that such data could help determine where users live, work, pray, what type of healthcare they seek, and much more.

The Pentagon and some federal agencies have banned or blocked the app on official devices. More recently, South Dakota Governor Kristi Noem implemented a ban on TikTok on state government-issued devices. Shortly after, South Carolina Governor Henry McMaster also moved to block the app on government devices. Despite these moves, the app maintains 1 billion daily active users and a substantial market share of US teenagers.

TikTok put China tech on the map. Now it’s coming after the US market share.

TikTok hit 1 billion daily active users faster than any other app, and nearly 100 million of them are in the United States – which accounts for one third of its userbase. It even surpassed Twitter in daily active users shortly after breaking into the U.S. market in 2018. Now, Twitter is losing a “devastating” percentage of its heavy users to TikTok (and Instagram) according to internal documents obtained by the media.

Twitter isn’t the only American social media giant losing the U.S. market to the Chinese-owned app though. Meta’s attempt to compete with TikTok through Reels is failing to pay off as its shares dropped to a two-year low.  And last year, TikTok dethroned Google as the world’s top search engine, ending the US tech giant’s fifteen-year streak, according to Cloudflare analysis. All three companies – among several other high-profile techs like Amazon – are cutting large swaths of their staff, but TikTok still appears to be hiring thousands. Despite efforts to compete with TikTok’s short videos through Instagram’s Reels and YouTube’s Shorts, TikTok is likely poised to maintain a strong position in the U.S. marketplace. It appears the only prominent threat to TikTok’s momentum in the U.S. may be investigators and federal regulators.

Graph Tiktok Growth

TikTok and CFIUS are set to make a historical agreement soon that will set the tone for geopolitical competition. 

TikTok and CFIUS have been in talks for months hoping to reach a national security agreement to protect the data of more than 100 million American users. Any agreement is expected to include data security requirements.

As mentioned above, the decision to walk away from a complete ban of the app and shelf TikTok’s divestiture indefinitely are a sharp contrast from initial Trump administration attempts to address national security concerns posed by TikTok. While many lawmakers, investigators, and federal regulators have pushed for greater scrutiny inside the U.S., there are risks in doing so.

If the U.S. government forces the divestiture of a successful foreign company to a U.S. company, what precedent does that set for U.S. businesses operating overseas? If the U.S. forces the divestiture of TikTok, would Apple, Microsoft, Tesla – or any other major American firms operating in China – be subject to similar treatment in retaliation? Even if a divestiture does not happen, any restrictions CFIUS sets for TikTok’s continued operations could inspire comparable Chinese retaliation. Further, based on historic behavior, it is likely the CCP will use a forced divestiture to support its story that the West is turning against China and to inspire nationalist sentiment among its people.

At the same time, any option that involves allowing the Chinese app to maintain its operations in the U.S. is a win for China – whether for diplomatic, economic, or espionage purposes. Further, there has been no evidence to suggest that China will be prevented from accessing American users’ data, even if it is stored inside the U.S.

What is certain is that any CFIUS decision will set the tone for regulating geopolitical competition in the coming years as the U.S. and China compete for technological advantage and market share in both countries.

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