Analysis Each day for the past six days, the sale of the US wing of the video-sharing app TikTok has been alternatively approved and not approved, each time with a wave of announcements, tweets, press releases and 24-hour news coverage.
It has been extremely confusing. And so, in an effort to help you ride the wave of information, here is our guide to what is going on.
First up, it should be noted that literally no one knows what the situation is. Not ByteDance, which is the Chinese company that owns TikTok; not Oracle which hopes to become the company’s cloud partner; not Walmart which hopes to become its main merchandise outlet; not any of the assorted Trump Administration officials that have repeatedly commented on progress; and certainly none of the media outlets and breathless cable commentators that have turned the sale of a video app into a rolling 24-hour news story.
The reason no one knows what’s going on is because of a chaotic situation imposed by President Trump when he signed an executive order in August that effectively required the US side of TikTok to be sold off in about a month or face being banned in the United States. The reason given was that TikTok, as a Chinese product, could be backdoored and silently accessed by Beijing on millions of devices, and the President wanted all that American data kept on American soil and out of the hands of the Middle Kingdom.
Since TikTok has 100 million users in America, it decided it had little choice but to act, and act fast.
It would normally take a year or so for such a big deal to be agreed, so trying to do it in a few weeks was always going to be a push. On top of that, there has been intense political and media interest, fueled in large part by Trump continually putting a spotlight on the process. The result has been a circus.
It is worth noting that the cut-off date of Sunday, 20 September – which has driven much of the urgency – was entirely arbitrary; a situation indicated by the fact that it has since been extended. A similar ban was also approved on another app, WeChat, and that ban has been put on hold by a federal judge.
Here’s where we are currently: the deal is off. That is based on what President Trump said on Monday during a phone interview with morning TV show Fox and Friends. The president discussed a meandering array of issues but on TikTok, he said: “If we find they don’t have total control, we won’t have a deal.” By “we”, Trump meant US companies Oracle and Walmart that will take a stake in TikTok Global – the entity that will be formed to house everything of TikTok that’s outside of China – as part of a deal designed to gain approval of the Trump Administration.
That statement was in stark contrast to another statement that Trump made just two days earlier, on Saturday, to reporters outside the White House. That time, he said: “I have given the deal my blessing. If they get it done that’s great, if they don’t that’s fine too.”
So if you are looking to understand why this issue has become so ridiculous, you need look no further than the fact that Donald Trump has inserted himself in the middle of the process. Because Trump signed the executive order, he has an effective veto over any deal and so it now revolves around a chaotic interplay of politics, business, media attention, and pure personal whim.
As to the deal itself: a near-final version was provided to the Treasury Department, which will ultimately sign off on it, on Wednesday, and it came back with changes to ByteDance on Thursday. The Chinese company agreed to them, and that sparked all the speculation that it was done.
The full terms of the deal are not known but we do know the following:
- Oracle and Walmart will take a combined 20 per cent stake in TikTok Global
- ByteDance will retain 80 per cent but then go public within a year and sell that stake to the global markets
- ByteDance, while a Chinese company, is already majority owned by American investors, with them holding 53 per cent of the business. European investors own 11 per cent of it, and the remaining 36 per cent is owned by Chinese investors.
- The deal will include $5bn in “new tax dollars” to the US government as well as a “contribution to education” in the US.
- The deal will include a promise of 25,000 new jobs in the US, although, it should be noted, not within any specified timeframe
These are the fact but thanks, again, to President Trump, the details have become confused, in large part because it appears the president does not have a full grasp of the deal. Trump confused and conflated the $5bn in “new tax dollars” and the “contribution to education” and said that the deal would include $5bn for a new educational program.
Not so much
ByteDance felt obliged to push back on that and four other “rumors” in a blog post on Monday, written in Chinese, that pointed out the $5bn “is a forecast of the corporate income tax and other operating taxes that TikTok will need to pay for business development in the next few years.” In other words, by headquartering itself in the US and expanding its business, it will pay more in tax to the United States.
It noted that it is only a “forecast,” however, not a part of the deal itself, and that the $5bn and the educational component has nothing to do with the money. In fact the entire educational aspect is another Trump-driven demand.
On Saturday, in what most people believe was an announcement calibrated solely to bolster his re-election chances, President Trump announced a new “pro-American curriculum” during a speech at the National Archives Museum.
The announcement was designed to play into America’s ongoing culture war, with Trump asserting that left-wing educators were imposing a vision of America that is “a wicked and racist nation,” and he would instead “restore patriotic education to our schools.”
With the TikTok deal revolving around the president’s approval, it appears most likely as though Oracle and Walmart decided to play to Donald Trump’s ego and announce as part of their deal something that gelled with that day’s campaign push. They announced that they would “develop an AI-driven online video curriculum.”
Which could be anything. But Oracle founder and executive chairman Larry Ellison has reportedly been speaking to Trump on a daily basis and it seems likely the educational component came from one of those calls. At the weekend, Trump referred to Ellison as “somebody I know,” adding: “He’s been, really, a terrific guy for a long time.” Ellison has previously raised funds for Trump’s reelection campaign.
Confusion in chief
With ByteDance, Oracle and Walmart pushing extraneous parts of the deal to make it more palatable to Trump as well as provide an easy public relations win, (of which the claimed 25,000 new jobs are another part), it seems most likely that Trump simply confused and conflated several details.
One area of confusion is the post-deal ownership arrangement to one where Trump appears to believe Oracle and Walmart would have effective control over TikTok. In reality, the companies themselves have been saying they will not have control but that American businesses and investors will end up owning a majority stake in TikTok through shares.
“Upon creation of TikTok Global, Oracle/Walmart will make their investment and the TikTok Global shares will be distributed to their owners, Americans will be the majority and ByteDance will have no ownership in TikTok Global,” Oracle executive veep Ken Glueck said in a statement to The Register earlier today.
At this point, it is worth asking why the sale of TikTok is even on the cards in the first place.
And the official answer is that the Trump Administration is concerned about the national security implications of an app that is used by millions of US citizens.
The argument is that the company will gather vast amounts of information, much like Facebook does with its Facebook and Instagram apps, but, as a Chinese company, ByteDance/TikTok could be required to hand over that information to the Chinese government.
That’s the basis for the executive order, the Treasury Department’s review, and a review by the Committee for Foreign Investment, an inter-agency body chaired by the Treasury.
In truth, there have been no serious concerns raised over TikTok user data, and the entire justification for “banning” the app is just part of a larger trade fight that the President started with China and into which he has pulled countless Chinese companies, including telecoms equipment manufacturers ZTE and Huawei; a fight that plays well with at least the Trump-supporting part of the electorate.
The general consensus, sadly, is that the entire saga with TikTok started when Donald Trump was embarrassed at a big rally in Tulsa in June. His campaign reported huge demand, stating that one million people had requested tickets to attend. A second outside stage was set up because the BOK Center only had a 19,000 capacity.
Policy by pride
However, when he turned up, the President appeared in front of a largely empty arena and the outside event was cancelled. The city’s fire department said just 6,200 people attended; the Trump campaign claimed it was really 12,000, though pictures of the event certainly favor the city’s number.
The huge and embarrassing disparity was quickly tracked down to… TikTok users. The largely teenage denizens of the service had started posting videos of themselves registering for tickets for the event (which were free) while noting they had no intention of attending. It was a teen rebellion thing, and it became that week’s viral event. As such, a good number of TikTok’s 100 million users did the same, using their real names and addresses to register for tickets they had no intention of using. The result: a sparse audience in the real world.
For a President who values TV attention more than anything else, the universal headlines and chyrons that he spoke to a near-empty arena were infuriating and, political observers believe, almost universally, that TikTok’s part in the saga, was the reason that Trump started criticizing the service immediately afterwards.
The fact that it was a Chinese company that owned the app only added fuel to the fire, and one month later, he signed an executive order banning it unless it reached some unspecified deal that would satisfy his entirely unwritten requirements.
Will the deal succeed?
As to where the deal will or will not come down, there are two components. One is the whim of Donald Trump, which changes from day to day, hour to hour. And the second is the actual business behind the deal.
The actual business value of TikTok comes down to two main things: data ownership and the service’s recommendation algorithm. Those are the two most valuable aspects to ByteDance’s business, and ByteDance has made it clear it will not sell or cede control of them. It was believed Oracle would receive the source code to the application to review for any issues; that now seems unlikely.
On top of that, the Chinese government introduced regulations last month that require Chinese companies to get a license to sell core technology to foreign companies – a move that no one has any doubt was a mechanism that would allow Beijing to block any sale of TikTok that it did not approve of.
So while Oracle will get the cloud contract, Walmart the merch, and the public market ownership, there is no way that TikTok’s core technology will move outside China. If the US government decides to insist on the algorithm shifting to US interests, it will fail.
And so all you need to understand the deal from this point on is that literally everything else you hear will be calibrated to appease an audience of one: Donald Trump. And that is what happens when you put a narcissist in the White House. ®