TikTok Debate Is the Latest Sign of U.S.-China Decoupling. There’s More to Come.
TikTok CEO Shou Zi Chew’s expected testimony in Congress Thursday is one of the most visible examples of the cracks in US-China relations. It signals a push to unbundle the two largest economies and force a rethink in the globalization that has formed the basis of corporate strategy and economic policy for decades.
As China has become a more formidable strategic rival and President Xi Jinping has taken a more assertive stance around the world, leaders in both the US and China are rethinking their interdependence, examining data and technology transfers, and strengthening domestic supply chains to become more self-reliant.
The intensive scrutiny of TikTok, the popular short-video app used by 150 million Americans and owned by China’s ByteDance, is just the latest example of the push for decoupling.
The Biden administration wants TikTok’s Chinese owners to sell their stake to avoid a ban on the app, but China said Thursday it would resist such a sale, according to The Wall Street Journal. Congress is working on the Restrict Act, which would give the President the power to ban apps that pose a threat to national security.
It’s about the security of Americans’ data using the app, as well as the Chinese government’s potential to influence content on the platform. In prepared statements, TikTok’s Chew is said to promise to keep the platform free from government interference and protect US user data from foreign access.
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A possible TikTok ban would set a possible precedent that could extend to non-social media companies that also hold dominant positions in the US economy, says Rory Green, head of China research at TS Lombard.
The broader debate on TikTok is a stark reminder of the changing US-China relationship that has played out in slow motion since the Trump administration’s trade war, fueled by China’s attempt to tighten ties with Russia following its attack on Ukraine and recent efforts by the US to cut off China’s access to advanced technology through export restrictions.
Leaders from both countries have stepped up efforts to become more self-sufficient and encourage allies to join them as they forge new alliances in a changing world order. It could be decades before it plays out, but signs of a split are already emerging, offering a glimpse of potential winners and losers in the years to come.
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Take US exports to China. They set a record last year, but Chad Bown, a senior fellow at the Peterson Institute for International Economics, notes that even with the slightest inflation, exports can reach new highs even as volumes stagnate. He looks at US exports versus international competitors’ exports to China: US exports to China are now 23% lower in 2022, with the gap widening. In 2020, US exports to China lagged exports of foreign competitors by 16%.
China is buying less US-made products, and Bown doesn’t expect a return to pre-trade war trajectories, in part because the US is restricting China’s access to advanced technologies like semiconductors. China has also been buying fewer US cars and planes since the trade war. For example, Chinese state-owned airlines chose Airbus (ticker: AIR.France) over Boeing (BA) when buying jets last year, with Western sanctions imposed last year on exporting aircraft parts and services to Russian commercial airlines’ fleets after the attack Ukraine may be pushing China to hedge its risks.
US energy exports to China also fell 13%, although prices rose sharply as the war in Ukraine rerouted energy supply lines. And while American farmers have become even more dependent on the Chinese market for their exports, particularly for soybeans, Chinese buyers are diversifying into other suppliers, Bown says.
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Beyond trade, both sides are already decoupling on the technology front as the US seeks to limit China’s access to critical technology and bolster its own capabilities. The US Department of Commerce just released guidelines for its Chips Act aimed at boosting US chip manufacturing. Any company that taps into available funds will be barred from investing in chip manufacturing capabilities in China for 10 years and from engaging in collaborative research or licensing efforts related to technologies that could raise national security concerns.
Fear that the other side might arm the trade is urging countries to act and compelling companies to find ways to mitigate the risk. Fear is fueled by China’s more aggressive stance on Taiwan, the island democracy that China claims as its own and that plays a crucial role in the world economy.
The Rhodium Group estimates that economic activity will be impacted by $2 to $2.5 trillion in a year if China locks Taiwan up with an economic blockade — ahead of the consequences of sanctions or indirect revenue losses for automakers and the rest of the world medical device companies and others that rely on less sophisticated chips from Taiwan.
“In our conversations with people in the C-suite, we’ve never heard anything so serious about the risks that are evident today,” says Charlie Vest, associate director of Rhodium Group Barrons. Businesses, he says, are carefully reassessing new investments in China.
And for a good reason. As the US seeks to vet foreign investment and there continues to be bipartisan support for stronger anti-China measures, TS Lombards Green sees the trade and tech war spreading to financial and capital flows. While these shifts could take years to materialize, investors likely need to pay close attention as they affect longer-term profitability and growth expectations and make some companies too risky to hold in portfolios.
Write to Reshma Kapadia at [email protected]