Trump Widens China Tech Attack, Ordering Bans on TikTok and WeChat

·6 min read
Trump Widens China Tech Attack, Ordering Bans on TikTok and WeChat

(Bloomberg) -- President Donald Trump signed a pair of executive orders prohibiting U.S. residents from doing business with the Chinese-owned TikTok and WeChat apps beginning 45 days from now, citing the national security risk of leaving Americans’ personal data exposed.

The bans mark a significant escalation by Trump in his confrontation with Beijing as the U.S. seeks to curb China’s power in global technology. With the U.S. election less than 90 days away, Trump is making his challenge of China a central theme of his campaign, where he trails Democrat Joe Biden in the polls.

Shares of WeChat’s owner, China’s Tencent Holdings Ltd., fell as much as 10% in morning trading and sliced almost $70 billion from its market value. The offshore yuan weakened as much as 0.45%, the most in two weeks.

“This is yet another watershed moment in the U.S.-China technology cold war here where the U.S. government is targeting these two very popular Chinese apps and basically saying they have national security problems,” said Paul Triolo, Head of Global Technology policy at Eurasia Group. “It shows the depth of the U.S. concern.”

The move coincides with Trump’s push for the sale of TikTok, the popular video app owned by ByteDance Ltd., to an American company. It threatens penalties on any U.S. resident or company that conducts transactions with TikTok, WeChat or their owners after the orders take effect.

“To protect our Nation, I took action to address the threat posed by one mobile application, TikTok. Further action is needed to address a similar threat posed by another mobile application, WeChat,” Trump said in the order against WeChat, released minutes after the TikTok measure.

While WeChat hasn’t been widely adopted in the U.S., the ban would still have broad implications because it’s used by more than a billion people and is central to business and social communications with China. The measure blocks all transactions involving WeChat but doesn’t amount to a broader ban on dealings with Tencent, according to a U.S. official. The order against TikTok blocks all transactions in which its owner, ByteDance, or subsidiaries have an interest, the official said.

Earlier this week, Trump threatened to shut down TikTok if its owners didn’t sell the business to a U.S. company by Sept. 15. Microsoft Corp. has been in talks about a possible purchase of TikTok’s operations in the U.S., Australia, Canada and New Zealand.

TikTok said in a blog post it is “shocked” by the order and will pursue all remedies available, including the U.S. courts. Tencent said it is reviewing the executive order to get a full understanding.

China said Friday that the U.S. was putting “selfish interests above market principles and international rules” and engaging in “political manipulation and oppression.”

“The relevant businesses follow market principles and international rules in conducting business operations in the U.S.,” Chinese Foreign Ministry spokesman Wang Wenbin told a daily briefing in Beijing on Friday in response to a question about the bans.

The measures would apply to any transaction over which the U.S. could have jurisdiction, and sanctions would be defined by the U.S. Commerce Secretary, according to a Trump administration official, who discussed the order on condition of anonymity.

Trump’s executive order likely means WeChat gets bumped off Apple Inc. and Google’s app stores in 45 days. Transactions subject to punishment could include agreements to make TikTok or WeChat available in app stores and purchases of ads on the apps, according to a person familiar with the matter, who discussed the orders on condition of anonymity. Simply downloading the apps could be affected, since that involves accepting terms of service that include an intellectual property agreement between the user and app developer, the person said.

WeChat, the messaging software developed by Tencent, has evolved into an all-purpose app that allows people to use it for payments, e-commerce and more. The app is one of the most popular in the world with more than 1 billion users, and U.S. companies like Starbucks Corp., for example, use the service with consumers in China.

Tencent is one of China’s most valuable tech companies, and its Chief Executive Officer Pony Ma is among the many business leaders who serves as a delegate to the National People’s Congress, China’s rubber-stamp parliament.

Tencent shares recovered to close about 5% lower, while the yuan pared losses to 0.24%.

Trump made his move under the International Emergency Economic Powers Act, a 1977 law that allows the president to declare a national emergency in response to an “unusual and extraordinary threat,” allowing him to block transactions and seize assets.

“IEEPA is an incredibly expansive authority and allows the president to declare a national emergency with respect to just about anything,” Brian Fleming, a lawyer at Miller & Chevalier in Washington who previously worked in the Justice Department’s national security division.

In his TikTok order, Trump said the app “automatically captures vast swaths” of user data, including location information and browsing history.

“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,” Trump said.

TikTok says American user data is stored in servers in the U.S. and Singapore, not China. But TikTok’s terms of service stipulate that the company may share information with its parent, subsidiary or other affiliates. Previous versions of its privacy policy warned users it could exchange information with its Chinese businesses, law enforcement agencies and public authorities, if legally required to do so.

Banning WeChat in the U.S. could have far greater implications to cross-border business between Chinese and American companies, impacting everything from the manufacturing of medical face masks and Apple iPhones to the inking contracts of lawyers and bankers.

In China, it’s virtually impossible to function without WeChat and is essentially used by businesses in the place of email and text messages, which are not used as widely in China as they are in the U.S. Other messaging apps like Facebook Inc.-owned WhatsApp are blocked in China, making it harder to communicate with overseas partners without WeChat.

“A ban on WeChat would be consequential because it would practically shut down communication between the U.S. and China,” said Graham Webster, China Digital Economy Fellow at think tank New America. “There are real data, privacy, and security concerns but they go well beyond these two Chinese apps and these orders just wrap the real issues up in political theatre.”

(Updates with TikTok response)

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