This week we talk about Huawei, DJI, and ByteDance.

We also discuss 5G infrastructure, black-box algorithms, and Congressional bundles.

Recommended Book: The Spare Man by Mary Robinette Kowal

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Transcript

In January of 2024, Chinese tech giant Huawei brought an end to its years-long US lobbying effort, meant to help mend fences with western politicians.

In mid-2019, then US President Trump had blacklisted the company using an executive order that, in practice, prevented Chinese telecommunications companies from selling specialized equipment in the US, as part of a larger effort to clamp-down on the sale of Chinese 5g and similar infrastructure throughout the US.

Around the same time, a Huawei executive was jailed in Canada for allegedly violating sanctions on Iran, and several other western nations were making noises about their own bans, worrying—as Trump's administration said they were worried—that Huawei and similar Chinese tech companies would sell their goods at a loss or at cost, significantly undercutting their foreign competition, and as a consequence would both lock down the burgeoning 5g market, including all the infrastructure that was in the process of being invested in and deployed, while also giving the Chinese government a tool that could allow them to tap all the communications running through this hardware, and potentially even allow them to shut it all down, if they wanted, at some point in the future—if China invaded Taiwan and wanted to keep the West from getting involved, for instance.

So while part of this ban on Huawei—for which the President made use of the International Emergency Economic Powers Act and declared a national emergency—was undoubtedly political (part of the trade war Trump started as part of the "China is the enemy" platform he was running on leading up to the 2020 election), there were also real-deal concern about China insinuating itself into the world's infrastructure, beginning with the rollout of the next phase of communications technologies; making themselves indispensable, disallowing foreign competition, and yes, possibly even creating a bunch of backdoors they could use at some point in the future to tip the scales in their favor during a conflict.

This ban also ensured that Huawei's then quite popular line of smartphones wouldn't be available in the US, or many other Western countries. The company sold off its Honor brand of phones in a scramble to try to protect that line of products from these new blocks on its offerings, which among other things disallowed them from accessing the chips necessary to make competitive smartphone products, but the legislation just kept coming after that initial salvo, the US Federal Communications Commission banning the sale or import of anything made by Huawei in late-2022, and a bunch of fundamental US allies, especially those with which the US collaborates on military and intelligence matters, have likewise banned Huawei products on their shelves and in their communications networks; the idea being that even one Huawei transmitter or modem could tap into the whole of these networks—at least in theory—which is considered a big enough security concern to justify that blanket ban.

Huawei has managed to survive, though it didn't scale the way its owners seemed to think it would back before all these bans.

Now it exists as a primarily regional outfit, still making billions in revenue each year, though down to about half the revenue it was earning before 2019.

Another popular Chinese tech company, DJI, is now scrambling to deploy its lobbyists and circle the wagons, as there's word that it's on a shortlist of potential Chinese security threats, in this case because the company makes very popular consumer and professional grade drones, which have successfully outcompeted many western brands of the same, and which have thus started to dominate aspects of the drone market.

These drones tend to be of the six or eight mini-propeller variety, the kind that people fly for fun, or use to shoot aerial photos, but the success of drones, even of this kind of drone, in Ukraine, reworked to spy on enemy fortifications or to carry explosives, has had the US Defense Department thinking it might not be the best idea to allow a Chinese company to own a substantial chunk of the US and international drone market—for many of the same reasons that Huawei was considered to be a threat; because that would allow China to continue to take out international rivals, allegedly by stealing their competitor's tech back in the day, and by continuing to back their companies with government support and funding, which makes fair and level competition a bit of an impossibility.

These companies are doing well for many reasons, then, and some of those reasons are not replicable outside the tight relationship the Chinese government has with its corporate entities.

If DJI is ultimately targeted in this way, it would likely be via a similar mechanism as the ban that was slapped on Huawei: new drones made by DJI would be unable to use the US's communications infrastructure, which would make their continued functionality in the country all but impossible.

This wouldn't ban DJI drones that are already owned by folks in the US, and it's anyone's guess as to how likely this will be to pass, as a bill to this end is currently working its way through the House, but DJI is lobbying heavily, is more common and popular in the US than Huawei was, and there's a chance that it simply won't be worth the potential political consequences for those who vote to ban it, if the bill works its way further through the process.

What I'd like to talk about today is another potential ban of a popular Chinese product, TikTok, and how such a ban might play out.

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Back in 2020, the Trump administration announced that it was looking into banning TikTok, a popular vertical video-focused social network that operates a bit like a cross between Instagram and YouTube, and which was becoming especially influential with young people, so-called Gen Zers.

TikTok is owned by a Chinese company called ByteDance, and ByteDance has a version of the same app in other countries, including China, which there is called Douyin.

That same year, TikTok hit back against the Trump administration with a legal challenge that said, in essence, the President was just trying to score political points by passing protectionist laws in the lead-up to the election, and that it might have also been revenge because there were young people on the platform posting videos about a prank they instigated at a Trump rally, which seemed to irk the former President.

Around this same time, TikTok higher ups began working on what became known as Project Texas, which was meant to help address one of the government's concerns and complaints, that data and media shared on TikTok was sent to Chinese servers, which suggested all that information could be more easily siphoned off and used by the Chinese government.

This project resulted in a re-working of how data on the platform is handled, bringing in US tech company Oracle to keep tabs on everything, ensuring that this data is safely managed and not sent somewhere the Chinese government can easily get it.

A former employee of TikTok alleged in early 2023 that this Project didn't do what it was supposed to do, and TikTok's leadership said that this employee left before it was fully implemented; other involved people have spoken about their own takes on the matter since then, some of them saying the company is locked down tight because of all the oversight it's receiving, while others have said it makes big security claims, but is still not locked down the way it needs to be.

This concern is the result of a law in China that says, basically, if the government tells you to hand something over, you do, or you can be stripped of all your wealth, can be put in prison, can even be killed.

So ByteDance's leadership's claims that they have not handed this sort of data over to the Chinese government, and wouldn't do so if they were asked, can't be trusted, according to arguments against their claims, because they would of course lie about this if they had handed it over, and may not even be legally allowed to admit to so doing, but they also wouldn't really have a choice if they were asked—they would legally, in China, have to do so.

That's the big argument and concern on the US security side of things: the Chinese system works different than the system in many other countries, and because of how integrated and entwined their government is with their market, every single Chinese company, like ByteDance, like Huawei, like DJI, should be considered a wing of the Chinese military, because in practice, they are.

Thus, as soon as these concerns about TikTok started to hit the mainstream consciousness, we started to see those federal efforts to do something about it—most of which were initially unsuccessful, except for that Project Texas effort, about which no one seems to be able to say with any certainty whether it was successful or not.

At the state level, we also saw a bunch of bans on having the TikTok app on corporate and government devices, and in some places, like Florida and Montana and Indiana, we've also see bans on Chinese individuals and Chinese companies acquiring land, working on some types of research, setting up factories, and other such things.

All of which sets the stage for a piece of legislation that was passed by the US Congress earlier this month, and then signed by President Biden, saying that ByteDance needs to divest itself of TikTok, and soon, otherwise TikTok will be banned in the US.

The specifics are important here: first is that this legislation was passed as part of a bundle with legislation that also provided funding for Ukraine, Israel and Palestinians, and Taiwan—so this is generally being seen as a sweetener to some further-right Republicans who otherwise would have opposed those funding efforts, and it may not have been passed if it hadn't been thus bundled.

Second is that this isn't a TikTok ban, in the sense that Biden signed it and now TikTok is banned in the US. Instead, it says, basically, TikTok can keep operating in the US, but it can't be owned by a Chinese company, which again, if the Chinese government asks them to do spy or military stuff on their behalf, they would legally have to do. So the idea is that TikTok itself isn't the problem, it's those ties to the Chinese government and intelligence and military apparatus.

Third is that the company now has nine months to figure out a deal to sell the whole or part of TikTok to some more acceptable—which in this case means non-Chinese-government-entangled—owner, and the President has the option of extending that to a full year, if it looks like a deal is about to be done, but needs a little more time.

That's up from a previously proposed six months, and is considered to be more realistic, given the scope and scale of the company in question.

And that scope and scale is point number four: TikTok is huge. It's an absolutely behemoth company, with about 170 million users in the US, alone, and about $16 billion in revenue each year.

That's still nowhere near Meta's $134.9 billion of annual revenue, but it's still a colossal company that's generally considered to be worth more than $100 billion, again, for the US assets alone—though if the company were to sell everything but the algorithm it uses to decide what videos to show its users, it's though that price could drop to closer to $20 billion; which is still substantial enough that there wouldn't be many people or entities capable of affording it, and some of the big, well-moneyed US tech players, like Meta and Google, would be unlikely to even try, as their offer would probably be held up by antitrust concerns within the current, fairly hardcore regulatory environment.

So ByteDance is being told to sell their US assets within a year, max, and they may have to find a buyer willing to spend tens of billions of dollars for it, and that buyer would have to be acceptable to the same US government that is telling the existing owner it has to sell or be banned in the country.

Analysts are mixed on whether this is a bluff or not, but at the moment, ByteDance's leadership is saying, in essence, no—we're not going to play this game, we would rather shut down the US version of TikTok than sell those assets.

Part of the rationale here might be that the Chinese government is telling ByteDance's owners that they're not allowed to sell these assets; it could be a requirement they're dressing up as staunch resilience to save face, basically.

It could also be that they did the math and realized that their US offerings, despite being worth billions, are nowhere near their most profitable assets—those are in China—and they'd rather double-down on that larger market and other foreign markets than sell off something valuable in the US, which could then be used to challenge them in some of those remaining markets.

It could also be that they're holding out for a good deal, or delaying, hoping that denying even the possibility of a sale will help their case in court.

And they do, by some estimations at least, have a pretty solid case to lean on.

Some legal experts are saying their First Amendment rights are being violated, and in a 1965 Supreme Court case, Lamont v. Postmaster General, the court ruled that foreign-produced propaganda—in that case communist propaganda—could still be distributed through the postal service because Americans have a first amendment right to receive it, even if they didn't specifically request it.

This is considered to be relevant, here, because one of the arguments against TikTok by the US government is that the Chinese government could adjust what they show people, favoring content that supports positions and views of the world they like, over time adjusting the opinions and facts or pseudo-facts young people in particular are working from—which over time could also influence what they believe, how they vote, and so on. 

There have already been claims that TikTok favors pro-Palestinian content over pro-Israeli content, for instance, and it has long suppressed work that talks about the Tiananmen Square massacre and other things the Chinese government doesn't like; it doesn't generally fully disappear this stuff from the platform, but the algorithms show that sort of content to few people, which has a similar effect to deleting it on an app where people primarily discover things based on what they're shown by that algorithm.

Of course, Facebook and Twitter and other networks have been accused of the same, in Meta's case downplaying news and political content, and in Twitter's, recently, post transition to X, favoring more conservative posts over more liberal ones—though in both cases, and in TikTok's, too, it's difficult to prove this sort of thing, and the algorithms are often black boxes rather than open code we can look at and judge objectively; so some such claims may be based on anecdote and the complainer's own bias.

And it's worth mentioning here that although the Chinese government, TikTok's leadership, and a slew of free speech rights groups have come down on TikTok's side, citing the US's First Amendment and the support it would seemingly have for the popular app and those who want to use it to exercise their speech—and for the company to exercise its own, as well, sharing stuff those people watch—China has regularly banned US social networks from its highly controlled and censored portion of the internet, clamping down on those that survive so hard that they don't have much control, their data highly secured and allegedly tapped within China.

So China is saying the US is in the wrong for doing something similar to what it does back home, though on a much smaller and more focused scale, and one of the counterarguments being made by some folks in the US, including some who are typically free speech proponents, is—well, tit-for-tat. Countries that remain open for US social networks will have their networks welcomed in the US in the same way, but those who don't? Their futures are less clear, because why should the US allow that kind of potential security and influence risk when the other side refuses to do the same?

There's a question here, then, of what the modern, splintered internet is and how it should be treated—perhaps especially in free speech-favoring, democratic societies—now that we've moved past the veneer of free and open online activity everywhere.

That's never been the case in China, and in many other countries around the world, so the idea that the US and Europe and similar nations need to behave as if it's equally open and free everywhere seems a little outmoded, and some such entities, like the EU, have been regulating based on that reality, while the US has been slow to do the same; this could mark a moment in which the US starts thinking along these same terms, or it could be another instance of maintaining the previous paradigm, because that tends to be easier, and because the relevant laws haven't been updated, yet.

There's also the question of how expansive this particular bill will end up being.

Does it apply to ByteDance's other apps, as well, including the popular CapCut video editing app, and its existing Instagram-dupe Lemon8, and potential future Instagram-clone TikTok Notes?

Further, does it apply to other Chinese-owned apps, and other apps owned by companies in, for instance, Russia and other current and future antagonistic states?

Also, to what degree will the law allow friendly nation states, like Japan and European nations, to scoop up these sorts of assets and operate them in the States, in a way China would no longer be allowed, when there's the chance that some of them—Hungary, for instance—might not always be so friendly? How does the friendly or unfriendly judgement get made, and what sort of process is involved in changing a nation's label from one to the other?

Right now, the framing of all this is mostly whether we prioritize free speech or national security, and it's arguably the government's responsibility to make that argument, or face the electoral consequences of seemingly behaving in anti-speech ways without any real purpose, beyond potentially empowering US-based social platforms over foreign versions of the same.

And lacking a stronger argument and more public evidence, there's a decent change a lot of people, especially young people will be irked at a TikTok ban, or even the possibility of one, despite the supposed security threat it poses.

All of which suggests this will be an interesting year, as the clock ticks downward on those 9 months, plus another 3, possibly, that ByteDance has to sell its US assets, during which several companies will probably arise, stating their case for scooping up the most popular social platform, with young people at least, in the country, and during which ByteDance's lawyers will be filing cases on their employers' behalf.

And this will all go down as the country winds its way toward the November election, which features two presidents that have spoken out against the app, while also having used it for their own political gains, to try to reach the youths of the country, who will play a major role in this upcoming election, but also a lot of elections after that, well into the future.

Show Notes

https://supreme.justia.com/cases/federal/us/381/301/

https://www.wsj.com/politics/states-take-on-china-in-the-name-of-national-security-7ed05257

https://apnews.com/article/us-china-blinken-wang-yi-8c1c453df3afbd6ec87ced0c8d618064

https://www.theverge.com/2024/4/24/24139036/biden-signs-tiktok-ban-bill-divest-foreign-aid-package

https://www.dw.com/en/eu-sets-tiktok-ultimatum-over-addictive-new-app-feature/a-68891902

https://www.nytimes.com/2024/03/22/business/tiktok-india-ban.html

https://apnews.com/article/tiktok-divestment-ban-what-you-need-to-know-5e1ff786e89da10a1b799241ae025406

https://apnews.com/article/tiktok-ban-bytedance-lawsuit-biden-386e6d81e2eef61a756bcdea96cd0aef

https://www.axios.com/2024/03/16/tiktok-ban-divest-ownership-china

https://www.lawfaremedia.org/article/five-observations-on-the-tiktok-bill-and-the-first-amendment

https://archive.ph/7Fikn

https://apnews.com/article/tiktok-ban-bytedance-lawsuit-biden-386e6d81e2eef61a756bcdea96cd0aef

https://www.washingtonpost.com/technology/2024/04/25/tiktok-legal-battle-is-certain/

https://www.nytimes.com/interactive/2024/04/18/business/media/tiktok-ban-american-culture.html

https://www.pewresearch.org/internet/2024/02/22/how-u-s-adults-use-tiktok/

https://www.ypulse.com/article/2023/06/05/gen-z-is-officially-using-tiktok-more-than-any-other-social-media-platform/

https://www.nytimes.com/2024/04/23/technology/bytedance-tiktok-ban-bill.html

https://www.cnn.com/2024/04/25/tech/who-could-buy-tiktok/index.html

https://www.nbcnews.com/business/tiktok-ban-bill-why-congress-when-takes-effect-rcna148981

https://www.wsj.com/tech/bytedance-says-it-wont-sell-u-s-tiktok-business-61f43079

https://www.wsj.com/tech/why-china-is-holding-its-fire-as-u-s-moves-to-ban-tiktok-38a63cdd

https://www.theverge.com/2024/4/11/24127579/tiktok-ai-virtual-influencers-advertising

https://www.lawfaremedia.org/article/project-texas-the-details-of-tiktok-s-plan-to-remain-operational-in-the-united-states

https://en.wikipedia.org/wiki/TikTok#Project_Texas

https://www.nytimes.com/2024/04/25/business/china-tiktok-douyin.html

https://www.bbc.com/news/articles/c289n8m4j19o

https://techcrunch.com/2024/04/27/will-a-tiktok-ban-impact-creator-economy-startups-not-really-founders-say/

 https://www.washingtonpost.com/technology/2024/04/25/tiktok-ban-bill-us-communities/

https://www.wsj.com/tech/how-tiktok-lost-the-war-in-washington-bbc419cc

https://archive.ph/pnMEG

https://www.theverge.com/24141539/tiktok-ban-bytedance-china-dc-circuit-supreme-court

https://www.axios.com/2024/04/23/tiktok-ban-bytedance-apps-capcut-lemon8

https://www.nytimes.com/2024/04/25/us/politics/us-china-drones-dji.html

https://www.theregister.com/2024/01/05/huawei_ditches_us_lobbying_team/

https://engadget.com/huawei-honor-sold-024435704.html

https://en.wikipedia.org/wiki/Huawei

https://www.politico.com/story/2019/05/15/trump-ban-huawei-us-1042046

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