Transactions with WeChat, TikTok banned under new Trump orders

UPDATE: Aug. 17, 2020: President Donald Trump issued an executive order Friday that demands ByteDance divest TikTok's U.S. operations within 90 days of the order's release, or by Nov. 12. Additionally, the order says ByteDance must divest any data on U.S. users accumulated through TikTok and Musical.ly, the app ByteDance acquired in 2017 and eventually merged with TikTok, by that date. The new order follows an investigation into TikTok by the Committee on Foreign Investment in the United States (CFIUS). Under the order, CFIUS is able to conduct an audit of ByteDance and TikTok's U.S. business, including by inspecting the company's books and information systems and by interviewing employees.

Brief:

President Donald Trump issued a pair of executive orders Thursday night that ban U.S. entities from conducting transactions with Chinese apps WeChat and TikTok. The orders take effect Sept. 20, 45 days from their release.
In the order addressing TikTok, Trump said the social video app, which is operated by the technology firm ByteDance, threatens to allow the Communist Party of China to access sensitive personal data on U.S. citizens, including that of federal employees. Additionally, Trump said the service reportedly censors content deemed politically sensitive by Chinese authorities and could be leveraged to spread misinformation campaigns.
The order on WeChat touches on largely similar concerns. WeChat has over 1.2 billion global users, making it the most popular messaging app in the world, and is owned by the technology giant Tencent. It's not immediately clear the extent to which other Tencent properties could be affected by the ban, according to media reports.

Insight:

With the pair of executive orders, Trump is considerably escalating aggression against Chinese technology companies. China has helped drive innovation in the mobile space in recent years, including through TikTok, a novel social video app that has captured the attention of young U.S. consumers and subsequently become a desirable destination for major brands such as Chipotle Mexican Grill and American Eagle Outfitters. TikTok has been downloaded an estimated 175 million times in the U.S.

But the orders issued Thursday, which ban U.S. entities from dealings with WeChat and TikTok after a 45-day period, reinforce that the White House is looking to give these firms the cold shoulder, viewing their services as a peril to the security of U.S. user data and economic interests.

"TikTok automatically captures vast swaths of information from its users, including Internet and other network activity information such as location data and browsing and search histories," the executive order addressing TikTok reads. "This data collection threatens to allow the Chinese Communist Party access to Americans' personal and proprietary information — potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage."

Media reports suggest that the orders will likely face challenges on legal grounds, and TikTok has already threatened to take action following the president's decision, which it views as not providing ample evidence that would warrant a ban, according to Variety.

For weeks, the Trump administration has nodded to a potential ban on TikTok, ramping up pressure on ByteDance to divest its U.S. operations. Microsoft, which was already in discussions with the Chinese conglomerate about a deal, has emerged as the most likely acquirer. The directives issued Thursday essentially establish a concrete deadline for ByteDance to sell the business or see TikTok's services shut down in a key market.

A full shutdown would leave TikTok's base of content creators and the millions of U.S. users who follow them astray, though rival social media platforms, such as Instagram and Snapchat, have quickly added TikTok lookalike features to court the same audience. For brands, TikTok added more flexibility into its advertising deals so that campaigns can be canceled if a ban does occur, Ad Age reported earlier this week.

But of potentially greater significance for businesses are the new steps taken to block WeChat and its parent company Tencent. Companies ranging from Walmart to Starbucks rely on WeChat as a key communications line to China, as noted by Bloomberg. China is Walmart's fastest-growing market and accounts for 9% of the big-box retailer's international sales, per Bloomberg. Other major multinational marketers based in the states see a similar area of opportunity in the country.

WeChat offers e-commerce mini-apps inside its core service that allow U.S. brands to sell their products to Chinese consumers, but those channels could be cut off under a ban on transactions with the app. Similarly, app stores hosted by companies like Apple and Google may need to remove WeChat under the executive order.