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Concern surrounding technology is at the heart U.S. National Security policy with China: Expert on TikTok deal

Roger Zakheim, Ronald Reagan Institute Director joins the On the Move panel to discuss the latest on the TikTok deal.

Video Transcript

JULIE HYMAN: Let's dive right into what's going on with TikTok. The latest-- the plan, at least, is that Oracle is going to take a 12 and 1/2% stake in TikTok Global, which will be the newly-formed entity with the US holdings, breaking it off from ByteDance. Walmart set to own 7 and 1/2%.

But it's unclear if all of this is going to pass muster, not just on the US side, but on the Chinese side. Dan Howley, you have been tracking this deal all along. Does this deal, as it's sketched out-- and it's not entirely clear how it's sketched out-- but is it going to satisfy the US security concerns?

DAN HOWLEY: Yeah, I think that's really the main issue here, right? It was more along the lines of how does this kind of impact the idea that the Chinese government will have access to US data. And we heard from TikTok originally that all US data would be kept, or all US user data would be kept in the US. And that really is supposed to be the main issue.

But it looks like the Trump administration had gone beyond that when they were discussing this, saying that they don't want ByteDance to have ownership of TikTok, things along those lines. And now we're seeing kind of a mishmash of ideas. I guess ByteDance is saying it's going to have 80% of TikTok global. So it kind of stays in the realm of where are we and where are we going. And, obviously, Trump is still saying that he could axe the deal, even though it appears to be coming together rather quickly.

JULIE HYMAN: Dan, thank you. I want to get some more perspective on this deal and its implications. Roger Zakheim is joining us. He is director of the Ronald Reagan Institute. And he's joining us from Washington DC.

Roger, it's good to see you again. Even as we sort of get more meat on the bone of what this deal is going to look like, I still can't quite get past of how the whole thing has unfolded and how, perhaps, it looks more like how China typically does things versus how the United States typically puts these deals together. What's your reaction to what we know as of right now?

ROGER ZAKHEIM: You're right. It is unusual. It's unusual because a case like this would normally have to be filed through the Committee on Foreign Investment in the United States, or CFIUS. It was not. The parties failed to file.

And then as TikTok has increased in use, in popularity, US government said, well, you never filed. We're going to take a look at it. And that's what triggered this discussion now. Government, CFIUS looked at it and said, hey, you cannot proceed, result in the president's order, which, of course, is extended for a week until this Sunday.

That was one of the most unusual elements. The second piece is the president's involvement. I mean, you can't get over the fact that he's been trying, along with the secretary of treasury, to engineer US companies to come in and take over the US company, or at least have a majority stake.

From a a security standpoint, it's pretty clear that when it comes to a Chinese technology company, you simply can't get a US company to say, OK, we're going to manage the algorithm and the operations. It's clear, based on many other cases that CFIUS has looked at, that US ownership was going to be their requirement. In fact, even giving a Chinese entity a minority interest is something that CFIUS has passed on in the past-- in other words, they have not allowed. So this is unprecedented a number of different directions.

ADAM SHAPIRO: Roger, I saw H.R. McMaster on "60 Minutes" last night and talking about his new book and the threat of China and perhaps this new Cold War we're in with China. How do you balance the security interests that the United States have with the business interests that our corporate community has? Because China will retaliate.

ROGER ZAKHEIM: Yeah, I mean, in this case, China's already retaliated, or they were the first actor, right? We do not have our social media companies in China right now. Right, so this is the other side of it. The separation has already started. You don't have Twitter or Facebook in China for years.

Separation or decoupling with China when it comes to national-security-sensitive technologies is kind of the heart of the policy matter. If it's soybeans, no one's really arguing that we shouldn't be able to have ventures with China and a robust trading relationship. But when it comes to big data and information on US citizens going in to China, the precedent is clear. We're not going to allow it. Certainly we're not going allow in a fashion where a Chinese entity has majority control and could establish either back doors or just continue to influence and infiltrate the lives and institutions in the United States.

DAN HOWLEY: Roger, I guess my question is really what is the security concern, right? I mean, you've looked at-- I've spoken to some security experts who give you this kind nebulous idea of a great Chinese bogey man potentially taking over teens' dancing videos and using that against them to blackmail them in the future. But, I mean, look, any employer could go on Facebook and see untold numbers of videos or pictures of teens drinking beer right now, right? So that can be used. What makes this so nefarious compared to something like a Facebook or Instagram?

ROGER ZAKHEIM: Yeah, I mean, it seems fantastic, doesn't it, in terms of the kind of innocent dances that our children do on a TikTok video to be a national security concern. But ultimately, it's about data. I mean, what the US government's concerned about, what our national security agencies are concerned about is the great kind of sucking sound of all of our information and data going from continental United States over into Beijing, which will inform-- which will impact how Beijing builds its-- not only its economy, but its influence operations, its ability to take that data and shape artificial intelligence and other systems, not only purely on the military side, but beyond on the kind of-- that line between the economic side and the national security side. That's really the fight.

We've been doing this in terms of the United States, the Committee of on Foreign Investment in the United States, trying to regulate and limit the amount of data China has in terms of US citizens for years now. We do this when it comes to insurance companies. And those young teenagers, whose data and information that would be in the hands of the Chinese, in a decade's time, that will still be valuable to the Chinese. And they will not be teenagers innocently doing their dance video.

So that's the primary concern. It's the data. The other piece of it is the backdoor, the infiltration, the ability for influence operations of one kind or another to be carried out by the Chinese Communist Party via ByteDance.

RICK NEWMAN: Hey, Roger, Rick Newman here. There's this open question of whether China prefers that Trump gets a second term or Biden wins. And this actually gets to the question of whether China might just be waiting for the outcome of the US presidential election to figure out what its ultimate reaction should be here. What's your best idea about what China actually hopes happens in the US presidential election?

ROGER ZAKHEIM: Yeah, who knows what China hopes. I think the reporting is the Chinese Communist Party expects that Trump may win. Obviously, Trump's taken a more confrontational set of policies to China, trade being the most prominent, but security as well. But Joe Biden is running for president, saying that he'll be tougher on China. And historically, when it comes to economic security, Democrats have been far more prominent in terms of challenging the Chinese with protectionist or trade tools than Republicans.

The reality is there's a consensus across the national security community that China is a national security threat. Whether you're Republican or Democrat, they feel that China really needs to be curbed, both in their ability not only militarily to go ahead and engage in island building or intimidation, like we see in Hong Kong, but also in terms of the way they have their command and control economy and are seeking to use government funds to take a lead position when it comes to the technologies that will determine national security in 21st century, artificial intelligence and big data being the top two examples.

JULIE HYMAN: And specifically, Roger, do you expect to continue to see these now unusual situations, like that of TikTok, become more the norm, where an administration, whichever administration it is, puts some crimp on the free markets in trying to solve these security issues? And not just the security issues, by the way, but things like a boycott of cotton that is allegedly produced from work camps in China?

ROGER ZAKHEIM: Right. I mean, yeah, the Uighur population that essentially in these work camps, and human rights activists are trying to isolate them. Now, listen, the decoupling between the United States and China as it relates to technology, right, and big data has been happening for some time. What's so unusual about the TikTok case, not only is it because it's a technology that our children use more than the adults, so it seems innocuous, but it's the fact that the Committee on Foreign Investment in the United States and the US government missed it. There were basically over two years where this transaction occurred and the government didn't act and the parties failed to file.

That is what's unusual. Otherwise, you would have been dealing with this during the moment where ByteDance chose to acquire Music.ly. So that's why we find ourselves in this precarious position, where we're essentially unwinding or trying to create this US entity. But this is here to stay. The decoupling in these areas of technology is going to be with us for some time.

It would not necessarily be consistent-- I mean, really, the last point on this-- if they're able to come to an agreement here with Oracle and Walmart and the US investors, technically, they'd have a majority US owned. But they'd still be giving ByteDance a larger share of equity than, really, you've seen in these Chinese cases before. CFIUS has really not allowed that large a percentage. And in some respects, it would be a relaxation, not a kind of increasing requirements on Chinese companies as a result of this case.

JULIE HYMAN: Which is not how the president's narrative would have you see it. Roger, thank you so much. Roger Zakheim is the director of the Ronald Reagan Institute. Appreciate it.