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Beijing doesn’t want to “poison the business climate in China”, says expert

With President Trump’s executive order banning of popular Chinese apps TikTok and WeChat on the horizon, investors and regulators arewill mean for American companies and U.S-China relations, Paul Triolo, Eurasia Group Head of Global Tech Policy, joins The Final Round to discuss the long-term implications of tensions between the largest economies in the world.

Video Transcript

SEANA SMITH: All right, well, let's get to another big story that we're watching here at Yahoo Finance, and that, of course, is escalating tension between the US and China. Last night, we had President Trump signing a pair of executive orders targeting TikTok and also WeChat. Now, the orders effectively would ban the two apps in the US in 45 days if they are not sold to their-- by their Chinese-owned parent companies.

And for more on this, we want to bring in Paul Triolo. He's the head of global technology policy at the Eurasia Group. And, Paul, the US government is citing national security concerns about the two apps. But first, I'm just curious of your geopolitical perspective on this, just what the potential implications of this are and whether you think this move will likely-- I think it will be-- will likely be met with retaliation.

PAUL TRIOLO: Yeah, I think it's important to put this in context. We've have-- it's really the fifth of some major issues that came out this week. So on-- on Tuesday, we had a announcement of a big US delegation going to Taiwan, the highest level delegation in-- in some time. We've also had Mike Pompeo, the Secretary of State, announce a broad initiative around so-called "clean networks" that actually included the issue of clean app stores.

And then yesterday, of course, we had the-- we had the-- the TikTok and the WeChat executive order drop, and we also had the SEC drop recommendations around de-listing Chinese companies on the US Stock Exchange. And then today, of course, we have the Hong Kong sanctions. So it's been quite a week. We think it's probably been one of the most historic weeks in US-China relations here. And so I think in Beijing, they're-- they're sort of digesting all of these things that have been thrown at them this week. I think the-- the TikTok and WeChat executive orders are still, you know, tough to-- to interpret.

I think you're right that at-- at a minimum, it looks like it's going to ban the-- the use of these apps in US-- in the US. The big question is, though, is what happens in China, and it's not really clear about how-- what sort of transactions are going to be defined here that are off limits. And so we're still kind of digesting, you know, how-- the scope of this. For example, I'll just give you one example, I mean, US businesses in China, retail businesses in particular, rely on the WeChat platform in China for-- to do business, and so this is-- this is a huge implication if this extends outside the United States.

The way this thing is worded, particularly the WeChat order, is very broad, and it's not clear exactly what kind of transactions are going to be covered by this. And so there's a 45-day window within which the Commerce Department will try to clarify this. But, you know, the-- US companies right now are very worried, particularly those operating in China, that this could be-- have a broader application. But right now, we think it looks like it's focused on the US banning those apps from the US app stores.

AKIKO FUJITA: Paul, I-- I've been surprised by how relatively restrained the Chinese government has been, at least as it relates to the discussions between Microsoft and TikTok. I mean, we're talking about the one success story for these Chinese companies, TikTok, in terms of what's happening in the US. Is WeChat one step too far for the Chinese government? And-- and is that what's going to invite a stronger response?

PAUL TRIOLO: Well, I think on-- just briefly on TikTok, the-- the official media has been pretty-- pretty strident on this, calling it sort of, you know, robbery that the US is pushing for ByteDance to spin off this-- this very potentially lucrative US operating it. I think WeChat-- it's a good question. I think it will depend on [INAUDIBLE] WeChat. If it's just the US app-- the US app store, if it doesn't go beyond Tencent. I mean, the other thing is that the actual executive order, it names Tencent.

So in a broad interpretation of this, this could, for example, mean that US companies could not supply the Tencent with semiconductors and-- and software. So it depends on-- on how-- what kind of clarifying rules we get around this from the Commerce Department, I think. So Beijing is probably going to hold fire on this. We've been saying for-- for some time that, you know, it's difficult to-- to react to all of these US actions.

Beijing has been showing a lot of discipline. They don't want to further poison the business climate in China by targeting US companies, for example, operating in China. So they're in a really difficult place where, you know, they don't want to do things to make things worse, but they're going to probably at some point have to respond.

INES FERRE: And, Paul, just off of that, so what kind of response are you expecting from China? And what does this say about the future of tech companies in the US and China? Where does this all end?

PAUL TRIOLO: Well, that's a great question. I think, you know, we-- I think that we're going to continue to see this disciplined response. The Chinese have not, for example, rolled out this so-called "unreliable entity list." And they've also threatened things, for example, like harassing US companies around antitrust and enforcement of things around the cyber security law, for example. So we might see some-- some targeted action against US companies once it becomes clear, for example, how-- how broad this-- this WeChat ban is going to-- is going to go.

But, yeah, I think for the longer term, you know, we're digging a big hole here on the US-China-- what we call the US-China tech Cold War. So I think-- I think the-- the only way right now is [INAUDIBLE]. The US is going-- is going to probably, for example, slap more companies in China with this. [INAUDIBLE] action, denying them access to US technology. So right-- right now, we don't see sort of the floor of this. And the big-- but the big question is-- is how badly Beijing is going to react to all of this.

And I think, you know, they're still calculating-- this is a big leadership meeting this week in [INAUDIBLE], and they'll be talking about this. I think the system is-- they're reeling from a lot of things-- Hong Kong, Taiwan, the South China Sea, [INAUDIBLE], a lot of US sanctions. And I think they're trying to figure out how to-- how to respond across all these issues.

SEANA SMITH: And, Paul, I just wanted to quickly ask you just in regards to Tencent, I mean, it's no secret that they have significant stakes in a lot of tech companies in the US, and gaming companies. I mean, Snap, Tesla, Activision Blizzard, just to name a couple. So when we talk about this attack on Tencent in regards to WeChat, what are the implications for the stakes of these companies? I mean, what is the future for that, do we know?

PAUL TRIOLO: That's a good question. I think we don't know. I mean, the-- it's possible that this executive order is written in such a way that they're really talking about the national security concerns around WeChat, you know, data privacy, censorship. So-- so activities involving Tencent that are outside of that narrow national security scope could be OK, things like-- like you mentioned, like investments. Gaming is a little bit trickier because there's a lot of-- there's a big US gaming component to this. We haven't seen gaming on the radar yet of US authorities.

That could happen. But I think that-- that my sense is that they're going to try to keep this somewhat narrow. The executive orders are written very broadly, and probably the clarifying language around them will try to narrow the scope of this so that it doesn't, you know, it doesn't preclude companies from collaborating with Tencent in other areas like investment, autonomous vehicles, et cetera.

SEANA SMITH: Yeah, certainly an interesting story, and one that [INAUDIBLE] by the hour. So, Paul Triolo, we really appreciate you taking the time to join us. Head of global technology policy at Eurasia Group. We hope to have you back soon. Thanks so much. Have a great day.