House Republicans and Democrats plan much more scrutiny of the U.S.'s economic entanglement with China, and fears over TikTok are growing
By David J. Lynch
January 30, 2023
Rep. Mike Gallagher (R-Wis.) nominates Rep. Kevin McCarthy (R-Calif.) for speaker in the House chamber in Washington on Jan. 4. (Alex Brandon/AP)
The new House select committee charged with alerting Americans to the perils of a rising China is zeroing in on TikTok, the Chinese-owned social media application that has built a massive American following despite suspicions that it could be used as a tool of foreign espionage or influence. The implications of this new scrutiny — part of a broadening congressional review of U.S. engagement with China — are unclear. Washington remains torn over whether it should ban the wildly popular app, order it sold or allow TikTok to keep scrolling across 100 million American smartphones. House Speaker Kevin McCarthy (R-Calif.) — who launched the committee as one of his first moves — this week named its 13 Republican members. Democrats have yet to tap theirs.
Rep. Mike Gallagher (R-Wis.), the panel’s chairman, wants to ban the app or force its sale to an American buyer, citing data security issues and TikTok’s potential use by Beijing as a weapon of propaganda. In an interview, he said the overlapping technology, privacy and foreign policy questions raised by the app’s meteoric U.S. growth illustrate why the wide-ranging committee is needed. TikTok CEO Shou Zi Chew has agreed to make his first appearance on Capitol Hill in a March hearing before the House Energy and Commerce Committee.
Gallagher’s objections to TikTok, which features user-created short videos, are shared by prominent Democrats. The Biden administration for months has been reviewing a TikTok proposal to restructure its operations to eliminate the risk of Chinese government control or influence.Some analysts believe that congressional action — or the approach of the 2024 election — could force the administration’s hand.
But the TikTok controversy is about more than just the fate of the latest internet sensation.
The debate also highlights a key challenge confronting the administration: How to define the parameters of an economic relationship with a nation it regards as the United States’ principal strategic rival — one many in Congress describe as an outright enemy.
“Is there such a thing as a private company in China? I’m not sure there is,” Gallagher said. “This is what makes the ‘new Cold War’ so much more complicated than the old Cold War. We never had to decouple from the Soviet Union.”
As U.S. policymakers’ views on China have hardened into reflexive distrust, Chinese companies that governors and mayors once wooed for job-creating investments now are seen as Trojan horses for the Chinese Communist Party. Republican lawmakers, including some likely 2024 presidential candidates, want to prohibit Chinese purchases of American farmland.
Democrats, too, have adopted a more jaundiced view of the security risks involved in dealing with the world’s second-largest economy. The Biden administration is readying new limits on U.S. investment in Chinese companies, months after the president banned China from buying the most advanced American computer chips or the equipment that makes them — a decision that William Overholt of Harvard University called “a declaration of economic war.”
Gallagher’s plans show that the rethinking of the U.S.-China economic relationship is intensifying. The stakes in even a partial decoupling of the two economies could hardly be higher. Despite a growing geopolitical rivalry, two-way U.S.-China trade in 2022 is likely to set a record, while companies such as Apple, General Motors and Caterpillar each year sell billions of dollars worth of goods to Chinese customers — and thus are vulnerable to retaliation from Beijing for any U.S. action against TikTok.
In a sign of the bipartisan appeal of a tough-on-China stance, the new House committee on “strategic competition between the United States and the Chinese Communist Party” was established on a lopsided 365-65 vote.
The former Marine chairing the panel is a Princeton graduate with a doctorate in international relations from Georgetown. Just 38, he is a rising star in Republican ranks and a vocal China hawk. In addition to TikTok, Gallagher plans to scrutinize military, economic and human rights issues involving China and is determined to shrink what he calls a dangerous reliance upon Chinese suppliers, including for propellants used in U.S. military munitions.
“Think about the absurdity there. The weapons we need for a future conflict with China come from China!” he said.
Still, after 40 years of steadily increasing commerce between the two nations, determining which deals are appropriate in this new environment and which impair U.S. national security will not always be easy.
Biden already has taken steps to make supply chains for semiconductors, electric batteries, industrial materials and pharmaceuticals more resilient by reducing U.S. dependence on foreign suppliers, including China. The administration says it is pursuing a “small garden, high fence” strategy that will restrict a limited number of advanced technologies while allowing most of the roughly $650 billion in annual merchandise trade to continue.
The president rejects the notion that the United States is embarking on a “new Cold War” with China. But Gallagher and other Republicans are less restrained, describing China as an adversary bent on upending the U.S.-led international order rather than a viable business partner.
Caught in the middle are multinational corporations. As the political winds have shifted against involvement with China, deals that once would have been celebrated are now shunned.
Virginia Gov. Glenn Youngkin this month rejected a potential bid by Ford to locate a new electric vehicle battery plant in the state, saying the automaker was acting as “a front for China” in seeking federal subsidies under the Inflation Reduction Act.
Ford had been scouting the state for a joint venture with Contemporary Amperex Technology, a Chinese producer of lithium-ion batteries. The $3.5 billion plant reportedly would have meant 2,500 jobs for an underdeveloped corner of the state.
A 2020 study of European trade with China provides a rough indication of the commercial impact of a greater focus on national security. More than half of European goods exported to China raised no security concerns while 83 percent of Chinese products shipped to European customers were likewise routine, the Rhodium Group consultancy concluded. But roughly half of Chinese investment in Europe and one-third of European financial stakes in China were tagged as problematic, including those involving advanced computing, sensitive data and critical infrastructure.
Shou Zi Chew, chief executive officer of TikTok Inc., speaks during a conference in Singapore last year. (Bryan van der Beek/Bloomberg News)
The analysis of European trade flows provides “a good baseline” for analyzing how U.S. trade with China might evolve as security worries shadow the relationship, said Daniel Rosen, a Rhodium partner in New York.
“We need to start from scratch in looking at the fundamentals of our relationship with China,” said Rosen. “We have one of the most profound two-way commercial interrelationships in history as the starting point. Completely cutting that off would be a cure almost as bad as the disease.”
The debate over how far to go in thinning economic ties is occurring against a backdrop of public hostility toward China. In a Pew Research Center poll last year, 82 percent of Americans surveyed said they had an unfavorable view of the country, more than twice the figure in 2012 when President Xi Jinping took office.
Even before Xi became president, China began emphasizing homegrown technology development. The bid to reduce its dependence upon the United States has accelerated over the past year alongside a growing economic role for the state.
In an earlier era, TikTok might have been an emblem of American and Chinese collaboration. The service was developed by a subsidiary of ByteDance, a Beijing-based start-up that drew funding from American investment firms such as Tiger Global Management, Kohlberg Kravis Roberts & Co., Carlyle Group, Goldman Sachs and Morgan Stanley.
A few months after ByteDance was incorporated in 2012, for example, Susquehanna International Group Ltd. in Philadelphia bought 15 percent of the company in a $5 million financing round. Susquehanna’s stake is now valued at $15 billion, according to a recent report by the Internet Governance Project (IGP) at the Georgia Institute of Technology.
The investment firm did not reply to a request for comment.
Now, instead of being celebrated, the popular social media site represents a cautionary tale of the costs involved in unwinding the U.S.-China partnership.
TikTok says it already has spent $1.5 billion on its proposal to address Washington’s security concerns by removing its U.S. operations from ByteDance’s control. The interagency Committee on Foreign Investment in the United States (CFIUS) since August has been reviewing the proposed “mitigation agreement,” which would place the U.S. version of TikTok under a three-person board of directors, composed of American executives subject to U.S. government approval.
A spokeswoman for the Treasury Department, which chairs CFIUS, declined to comment.
President Donald Trump in 2020 sought to ban TikTok. But a federal judge blocked the move.
Now, with the new congressional panel, Capitol Hill is set to wade in. The select committee cannot author legislation, but plans to issue a report by year’s end with recommendations for U.S.-China policy.
Either a ban on TikTok or a forced sale could dent ByteDance’s value and thus cost its U.S. investors. Other costs of a ban include the potential loss of digital content created by the millions of Americans who have posted videos on the site and retaliation against U.S. companies operating in China, said the IGP study.
Those costs are worth bearing, according to those who doubt anything offers foolproof protection against Chinese influence on TikTok.
“My real concern is particularly if this tension and this competition with China continues to heat up is suddenly, well, you know, you’re not going to see any videos that would be ever critical of the CCP or you’re suddenly going to see videos that are more critical of the United States or critical of democracy,” said Sen. Mark R. Warner (D-Va.), chairman of the Senate Intelligence Committee.
Some independent analysts say that any attempt to slip pro-China propaganda into the app’s stream of entertaining and humorous user-created content would simply drive away American users. The alleged national security risks associated with the service are “non-existent or exaggerated,” the IGP report concluded.
Meanwhile, as lawmakers prepare to act, the president could be caught between approving the TikTok mitigation agreement — and being attacked as “weak” on China — or acquiescing in a legislated crackdown on one of young Americans’ favorite social media apps.
At TikTok, frustrated executives grouse that they are caught in a political debate dominated by suspicion of all things Chinese. Executives are continuing to implement the mitigation agreement as if it had been approved.
Earlier this month, TikTok opened its first “transparency center” in a suburban Maryland office park. Each day, teams of software specialists from Oracle review the app’s computer code line by line, aiming to ensure that no American user data is being surreptitiously transferred to the Chinese government and that the site’s algorithm is not serving up Chinese propaganda for an American audience.
It may not be enough. Despite offering to firewall its U.S. operation, TikTok is viewed by critics as a proxy for Chinese communism.
“I am not making the case for total decoupling. It’s not in our economic interest,” Gallagher said in an interview. “I don’t have a problem with Wisconsinites buying cheap T-shirts from China or with Wisconsin farmers selling soybeans to China. But it’s almost going to be on a case-by-case basis.”