WHAT TO DO ABOUT TIKTOK WHEN STUDY SHOWS THE ONLINE PLATFORM CONTRIBUTED $24 BILLION TO THE U.S. ECONOMY IN 2023

The US House of Representatives this week passed the `Protecting Americans from Applications Controlled by Foreign Enemies Act.” The bill focuses specifically on the online social media platform TikTok and its upstream corporate parent, ByteDance Ltd.? If the Senate agrees, and the President signs the legislation, TikTok will be prohibited from operating in the United States unless it sells its business to American owners.

Who will be impacted by a shut-down of TikTok? Apparently, all of us, including the many small and medium-sized businesses that populate America’s food and beverage industries.

As members of the Senate debate whether to expel TikTok from the United States, data analytics firm Oxford Economics released a study measuring the economic impact generated by U.S. small- and mid-sized businesses on TikTok.? This research report, commissioned by TikTok in late May of 2023, presents comprehensive economic modeling and survey findings of 1,050 small and mid-sized businesses that use TikTok, along with survey data from 7,500 TikTok users, to gauge how businesses and users interact with the app and leverage the economic and social opportunities it provides.? These two value streams together supported a $24.2 billion contribution to U.S. the gross domestic product (GDP) in 2023.?The study also found that nearly 40 percent of small and mid-sized businesses say TikTok is critical to their existence, which is home to seven million businesses and 170 million active users in the U.S.

Across the sectors covered in the study, the contribution to GDP from small and mid-sized businesses on TikTok was highest in the food and beverage industry, supporting $6.4 billion and 73,000 jobs in 2023.

Risk Perception versus Risk Reality: According to polling published by the Pew Research Center in July of 2023, about six-in-ten Americans (59%) view TikTok as a major or minor threat to national security in the United States. Conservative Republicans stand out in how big of a threat they see in TikTok; half say TikTok is a?major?threat to national security in the U.S., while about a quarter or fewer say the same among moderate or liberal Republicans or among Democrats of any ideology. Views of TikTok as a threat also vary by age; according to the Pew polling results, only 13% of adults ages 18 to 29 say TikTok is a major threat, while 46% of Americans 65 and older express the same fear.

What is unclear from the polling, however, is how many of the respondents to Pew’s polling were aware of the outside impact that TikTok has on the U.S. economy generally, and American small and mid-sized businesses in particular? Would an informed understanding of the potential impact on businesses and their employees make a difference in the public’s perception?

Similarly, it is unclear how much of a factual basis supports the rationale voiced by members of the House of Representatives voting to ban TikTok absent a change in ownership see several risks. The pending legislation is predicated on allegations of several national security risks from the use of TikTok.? The two principal concerns voiced by proponents of the ban are that:

(i) TikTok is part of a nefarious Chinese government influence operation designed to sway U.S. politics. However, the sad reality that America’s political polarization and resulting dysfunction are problems of our own making. If the concern of lawmakers is the threat of foreign influencers, Russia is far more experienced and effective than China in influence operations aimed at foreign audiences.

(ii) TikTok can be used to collect personal data on Americans. China does?collect?personal data on Americans and has been doing so for over least a decade, but so do many other countries.? Moreover, there are numerous American companies that legally harvest and sell their consumer transaction data, to China, and any other purchaser.? These data dealers take advantage of the loophole created by the Congress’ failure to pass privacy legislation like the protections in place for citizens of the European Union. President Biden’s February, 2024 Executive Order?(EO) on data may make this more difficult but will not stop foreign access to American data as the EO strictures can be circumvented. Banning Tik Tok certainly will not stop the existing commerce in American consumer data, whether personal, transactional and otherwise.?

Are there better solutions?? Several come to mind.? Forcing ByteDance to divest itself of the valuable and highly profitable assets and sell to a U.S. owner likely is impossible. China has already objected, labeling the proposed legislation as “theft.”? ?Even if Beijing did not object to divestiture, TikTok is extremely valuable — some estimate its market cap valuation at more than US$250 billion.? There are few or no buyers capable of amassing such a huge amount of investment capital for a single transaction. Moreover, TikTok could avoid divestiture and set up shop in a third country (in the past, TikTok considered doing this in Ireland), storing its data and conducting operations there to circumvent U.S. restrictions.

Banning TikTok faces significant likely insurmountable obstacles and relation to free speech, which is protected by the First Amendment. the International Emergency Economic Powers Act (IEEPA) authorizes the President to regulate a variety of commercial transactions and to block (i.e., freeze) foreign-owned property and assets subject to the jurisdiction of the United States. Before invoking these authorities, the President, following the procedures of the National Emergencies Act, must declare a national emergency related to an “unusual and extraordinary threat, which has its source in whole or substantial part outside the United States.”

While IEEPA grants extensive authority to the President to restrict or prohibit transactions under certain conditions, the statute also lists categories of conduct that the President cannot regulate. Under the personal communication exception, the President may not restrict “any postal, telegraphic, telephonic, or other personal communication, which does not involve a transfer of anything of value.” Under the informational materials exception (sometimes called the Berman Amendment after its legislative sponsor, Representative Howard Berman), the President cannot restrict most “information or informational materials, including but not limited to, publications, films, posters, phonograph records, photographs ... artworks, and news wire feeds.” TikTok’s core function—creating and sharing short-form videos—involves transmitting personal communications and informational materials, albeit in a modern format.

?Previous efforts to ban TikTok have all failed because of these obstacles, and a ban would face lengthy litigation at the least, and based on past judicial precedents likely would fail.

A more feasible approach would take advantage of TikTok’s desire to use an initial public offering (IPO) to offer shares of the company to the market. An IPO would allow TikTok’s current owners to legitimately profit from the company’s success. TikTok’s investors could use an IPO to “cash out,” and an IPO on Wall Street would provide a vehicle for the Committee on Foreign Investment in the United States (CFIUS) to intervene and impose conditions on the IPO to mitigate risk, including establishment of external oversight guardrails for TikTok’s software and updates, using a third-party review. One approach would be to create an oversight board of U.S. citizens with security clearances (a common CFIUS practice). Monitoring data flows and conditions on where personal data could be stored by the new entity, who could access it and how it could be used could be part of a CFIUS agreement.

CFIUS also could require increased transparency into the operations of the new entity to reduce risk. These measures resemble those proposed by TikTok in its Project Texas plan, with adjustments to allow oversight and compliance conducted by an external third party.

In sum, legislation and executive branch authorities can minimize actual national security risks while allowing TikTok to continue to operate. Broader solutions could include finally passing a national privacy law, expanding transparency into software supply networks, and restricting cases where the use of technology, regardless of its origins, creates risk.?

If Americans were polled after learning the facts about TikTok, its relevance to America’s small and mid-sized businesses, and the options for dealing with bona fide security concerns, what would the results look like?? Given the consequences that a TikTok ban would produce, that’s a question the U.S. Senate should consider asking!