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It's all pressure tactics: Expert on U.S. TikTok ban

James Andrew Lewis of the CSIS Technology Policy Program joins Yahoo Finance's Akiko Fujita to discuss the pending U.S. Government ban on TikTok and WeChat.

Video Transcript

AKIKO FUJITA: Let's begin today, though, with that news that broke this morning, the Commerce Department saying it will ban all downloads of WeChat and TikTok apps starting Sunday, September 20. The restrictions more stringent for WeChat, where users will be banned from transferring funds and payments through the app, a move that will affect 19 million users here in the US. A full-scale ban of TikTok won't go into effect until November 12, leaving the door open for a potential deal still between Oracle and TikTok's parent company ByteDance.

We did get a statement from TikTok responding to the order from the Commerce Department today, saying, in part, "In our proposal to the US administration, we have already committed to unprecedented levels of additional transparency and accountability well beyond what other apps are willing to do. We will continue to challenge the unjust executive order, which was enacted without due process and threatens to deprive the American people and small businesses across the US of a significant platform for both a voice and livelihoods."

Let's bring in our first guest for this hour. We've got Jim Lewis. He's a Senior Vice President and Director of the Technology Policy Program at the Center for Strategic and International Studies. Jim also formerly with the State and Commerce Department.

Jim, let's start with that ruling that we got from the department today. We were expecting that September 20 deadline, given the executive orders from the president in early August. But this comes at a time when there has been a lot of back-and-forth on these negotiations between Oracle, as well as ByteDance. How much of this order today could be potentially seen as pressure against ByteDance to say, look, if you want us to approve this deal, you're going to have to allow a US company to give-- or get a little more than what you've offered?

JAMES ANDREW LEWIS: No, I think it's almost all pressure tactics, because ByteDance must be balking at some of the conditions, which probably involve market share, and number of seats on the board, and access to their algorithm and source code, traditional stuff. In a lot of ways, this is a traditional M&A deal with a heavy political overlay. But I think the executive order and the long date, November 12, is a sign that this is intended to push them in the right direction.

AKIKO FUJITA: How much, Jim, is this the result of internal pressure that's happening right now within the White House? The discussions or the butting of heads, if you will, between the China hawks and those like a Treasury Secretary Steven Mnuchin have been well-documented. But you've also got senators like Marco Rubio and Josh Hawley coming out and saying, wait a second. This deal that's on the table is not at all what you asked for when you signed those executive orders back in August.

JAMES ANDREW LEWIS: You know, the point here is will ByteDance be forced to sell? And the president originally said he wanted American ownership. He wanted a complete sale. Pardon me. I don't think that's going to happen. And so that's why you see the executive order. People always jump in on these things.

And when you look at CFIUS arrangements, there's-- when they're this sensitive, you get external commentary. But in the White House, there's a group, as you know, who wouldn't mind killing the deal, killing TikTok, making it go away. So we've got a very serious opposition to what's probably a reasonable deal. If we don't get what is on the table or something like it between Oracle and ByteDance, we're not going to get anything, but that might be what some people want.

AKIKO FUJITA: How sensitive do you think the White House is right now to the ramifications of banning this app? Right now you've got until November 12 for a full-scale ban, so it's going to be after the election. But you still have got an app here that has 100 million users, certainly a very popular one within a younger demographic. I mean, what's in it for the White House to try and save the app in the US?

JAMES ANDREW LEWIS: You know, no one I've ever talked to has brought up the election as a factor here. It's all Chinese espionage and worries about Chinese access. But you have to admit, picking November 12 as the date might make you think they were looking over their shoulder at the election. And so by kicking it for a week or two after the vote, I think it gives them time to avoid any of the unhappiness that a complete ban would create.

And one of the things that's happened recently that is kind of interesting is TikTok has apparently been going to the White House and saying, hey, watch us. Look at the streams. A lot of your supporters are on it. So the date suggests politics finally has begun to play a little bit in this discussion.

AKIKO FUJITA: In the immediate future, Jim, we're looking at a much more stringent restriction in place for WeChat, which, as you know, is really a crucial line for a lot of Chinese expats living here in the US, no transactions allowed as of September 20. We had this report from Bloomberg come out yesterday talking about how CFIUS is now starting to look at some other assets that WeChat's parent company, Tencent, has in the US, like Epic and Riot Games as well. There is a huge question mark here about whether, in fact, CFIUS is going to go for those assets next, because that involves a Chinese company acquiring an American asset. How do you see that playing out now? And what do you think is CFIUS's next target?

JAMES ANDREW LEWIS: You know, I think that Tencent doesn't have a controlling stake. They don't own these companies. They've invested in them. They give them advice on how to pick up the pace when it comes to writing their games. So there's not a lot of national security risk here.

But the administration is going to keep pushing on anything that's Chinese and connects to the networks. So when I talked to TikTok a little while ago-- pardon me-- when I talked to Tencent a little while ago, they're very nervous about the games being the next target, and it's reasonable. You've got the gaming environment is so much more influential than it was a few years ago. I think there's going to be a review and say, hey, are we comfortable with having a Chinese company playing in the US gaming space?

AKIKO FUJITA: And Jim, really quickly, when you look at how this deal has played out, you've got a huge say from the White House here. The president's going to get the ultimate say in any kind of deal going forward. What does it say about the business environment and how business is going to be conducted moving forward in the face of this tech fight that we're seeing? I mean, we're hearing these reports about the White House being able to sign off on a new board that could be created as a result of some kind of deal done with Oracle, which would certainly be pretty unprecedented for a private company.

JAMES ANDREW LEWIS: Yeah, the level of intrusiveness in this is greater than anything we've ever seen, but in some ways it's par for the course. One of the things I think is funny about this is a lot of the tactics you're seeing, joint venture, access to source code, this is what China has required of American companies for decades. So we're just playing their own tricks back on them.

Whether that makes people comfortable, whether that's the right thing for the US to do is another matter. But the administration thinks it's on the right path. And so the Chinese don't like it when we use their tricks against them, but I think that's what the Trump administration intends to do.

AKIKO FUJITA: Jim Lewis, Senior Vice President and Director of the Tech Policy Program at CSIS. Great to have you on today.