Amid rising tensions between the US and China, the potential ban on TikTok, the Chinese social media giant, is sparking debate over its impact on the US economy.
And the overall reaction is mixed.
As Washington tightens surveillance of TikTok, citing national security concerns, analysts Dan Ives of Wedbush Securities and Eric Jackson of EMJ Capital weighed in on the economic fallout, particularly for U.S. tech companies Apple and Tesla, which have significant shares of the Chinese market have.
Legislative efforts to restrict TikTok underscore a “watershed moment” in U.S.-China relations, Ives said on CNBC's Squawk Box on Wednesday, adding that a ban could trigger retaliation from China that could potentially impact American companies that are deeply embedded in Chinese supply chains and consumer markets.
In this illustration, the logo of the social media application for TikTok is displayed on the screen of an iPhone against the background of a US flag and a Chinese flag. Economists are considering whether a TikTok…
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OLIVIER DOULIERY/AFP via Getty Images
Apple, the second-largest company in the US by market capitalization, and Tesla, ranked 12th, are in the crosshairs of geopolitical tensions. In 2023, Apple reported sales of $20.82 billion in China, a significant decline of 12.9 percent from the previous year but still nearly 20 percent of its total revenue.
Tesla's dependence on the Chinese market is also noteworthy: the electric vehicle giant generated sales of $21.75 billion in China in the same year, which corresponds to about 22.5 percent of its total sales. Their economic entanglement highlights the significant impact any retaliatory measures from China could have on the tech giants.
Explaining the precarious situation, Ives suggested that China may require Apple and Tesla to divest their Chinese operations, a scenario that could set a troubling precedent for other American companies operating in China. Such a move would destabilize companies' financial positions and disrupt global technology supply chains and market dynamics.
Echoing Ives' concerns, Jackson expressed similar fears in a CNBC interview on Thursday, noting the impact of a potential TikTok ban on Apple and Tesla. Jackson emphasized the inevitability of Chinese retaliation in the event of a ban on TikTok, noting that such a scenario could have serious implications for companies with operations and market share in China.
“There would certainly be retaliation,” Jackson said, illustrating a scenario in which the Chinese government could force Apple and Tesla to divest their Chinese operations, including related intellectual property.
The move, Jackson argued, would cause uproar and could signal a broader attack on U.S. interests within China's borders. The impact could extend far beyond the technology sector, hurting investor confidence and potentially leading to a reassessment of the risk associated with investing in broad Chinese stocks.
The analysts suggest that while a ban could serve national security interests, the broader economic impact could undermine the interconnected global economy, signaling a shift in the way tech companies navigate the choppy waters of international relations.
The debate also extends to the structure of the digital market. TikTok CEO Shou Zi Chew warned of economic and social impacts in a social media post, noting the potential of a TikTok ban to “give more power to a handful of other social media companies” and reduce competition in to undermine the digital landscape.
He pointed to the potential loss of billions in revenue and more than 300,000 American jobs related to TikTok's operations, painting a picture of far-reaching economic impacts that extend beyond the tech giants.
However, a study published last September by the Chicago Booth Review sought expert opinions on the impact of a nationwide TikTok ban on innovation and the technology industry as a whole. The consensus among economists was mixed. The majority agreed that such a ban could boost profits for major U.S. technology companies.
MIT's Daron Acemoglu agreed, noting that a ban could be beneficial “unless [other social media companies] are also regulated.”
Harvard University's Eric Maskin agreed that a ban would allow US social media companies such as Instagram's Reels (Meta) and YouTube's Shorts (Google) to win back business lost to TikTok, suggesting a possible realignment of the indicates competition.
However, one economist, Anil K. Kashyap of Chicago Booth, highlighted the unpredictability of China's response, which could potentially “negate the direct effect of reducing competition.”
What's next?
Steven Mnuchin, a former treasury secretary in the Trump administration, announced Thursday his intention to lead a group of investors to acquire TikTok.
Mnuchin's proposal, published on CNBC's Squawk Box, presents itself as a possible solution to the deadlock and suggests a way to address national security concerns without resorting to an outright ban.
Its approach advocates a decentralized ownership model that ensures that “no single investor or technology company exercises a controlling influence over the platform,” thereby preserving TikTok’s operational independence.
Unusual knowledge
Newsweek strives to challenge conventional wisdom and find connections in the search for common ground.
Newsweek strives to challenge conventional wisdom and find connections in the search for common ground.
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