How TikTok’s treatment could hurt China tech companies

U.S. lawmakers and politicians continue to weigh a ban on Chinese social media app TikTok. Yahoo Finance’s Akiko Fujita joins The Final Round panel to break down the details.

Video Transcript

SEANA SMITH: Well, I want to talk a little bit more about TikTok because not only as it relates to Netflix but, really, the news that we've gotten out over the last couple weeks. It's a story that we've been following with the Trump administration considering banning people here in the US from using the app, and let's talk about just the broader implications of this. And, Akiko, I know that this is a story that you're looking into it. Just in terms of the fact that if the US does follow through and does block TikTok or force some sort of change just what the impact could be then not only on Chinese tech companies but really any Chinese company looking to do business here in the US.

AKIKO FUJITA: Yeah, Seana. And, you know, it's important to, I guess, start the conversation by saying that we still don't know exactly what the administration is looking to do with TikTok and how they can even go about, quote, unquote "banning" an app.

But this has prompted a conversation about what exactly could happen to other Chinese companies with ambitions here in the US, and national-security experts I've been speaking to say the US-- the way the US navigates this and the tools in which they use to try and go after TikTok could create a template for other Chinese apps that are looking to enter the US, and there's a number of tools they're looking at.

So the "New York Times" has reported the Trump administration is looking to invoke the International Emergency Economic Powers Act, which essentially allows the president to regulate international commerce in case of unusual and extraordinary threats. But another agency or interagency, I should say, that's been quite active in trying to unwind these Chinese deals is CFIUS, and that is the Committee on Foreign Investment in the US. They have been tasked with reviewing national security risks that are tied to any kind of foreign investment into a Chinese company.

But under this administration, their scope has expanded broadly, not just looking at majority stakes but minority stakes as well. And there's little known-- there's little that's known about this committee. We don't know who actually sits on it. We don't know exactly what they're investigating, even in the issue of TikTok, only to say they're a national security risk.

And I had a chance to speak with a former CFIUS member saying the door is going to largely be shut to cutting-edge Chinese investments moving forward because this committee, as in CFIUS, sees China as a category of one. In other words, CFIUS has a specific suspicion tied to China under Xi Jinping, and because of that, any Chinese company coming into the US is likely to fall under some cloud of suspicion.

Now, specifically he says CFIUS doesn't really need to prove anything with Chinese apps. So he says this is not a criminal proceeding where the government has to prove anything beyond a reasonable doubt in terms of national-security risk. The government could just both force and unwind even if it believes that no data left servers in the US. So that presents a very high hurdle not just for TikTok but Chinese apps moving forward here in the US.

RICK NEWMAN: Hey, Akiko, another possible outcome here is that the parent company of TikTok, ByteDance, somehow divests TikTok and establishes a US ownership structure. Which, I mean, would that be a win for the Trump administration, and is it even plausible?

AKIKO FUJITA: Well it would be considered a win for the administration, and it is plausible. I mean, it's something that most national-security experts will tell you that anything short of a complete divestment-- unless ByteDance sells this company, CFIUS isn't just going to come back and say, you know, you have satisfied our concerns. We feel comfortable moving forward by allowing you to operate here.

So there's no question that is something that TikTok is looking at, and there's a number of examples we can turn to in terms of cases that CFIUS has heard before. So one that a lot of people point to is what happened in 2018 when Alibaba's Ant Financial wanted to buy MoneyGram. That was unwound.

But last year, another Chinese company investing in an American app-- so this is Beijing Kunlun Tech investing in Grindr, which is the gay-dating app. CFIUS forced that to be unwound as well because of concerns around the very private data that was collected and then the ability or the potential for Chinese government to be able to access that.

So those are some examples people have raised. But, you know, again, when you talk about TikTok, this is a consumer-driven app. For those who use it that don't even know it's owned by a Chinese company, it seems innocent enough, and that's why, as so many of these experts say, this could provide a really unique case. And if it is, in fact, forced to unwind, then this could be a template for other Chinese companies.

SEANA SMITH: Yeah, it certainly will be interesting to watch. And again, just the implications and how broadly this could go is certainly interesting. So, Akiko, thanks so much for that.