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Will the US ban TikTok?

Talks of TikTok being banned in the US have been circling for a long time and they have now been reignited, making it a real possibility in 2023.

Senators led by the Intelligence Committee chairman Mark Warner put forward the Warner Bill this week that proposed giving the US government new powers that would allow the Commerce Department to impose new restrictions, including outright bans, on foreign technologies if they pose a threat to national security. The bill does not directly target TikTok, owned by Chinese firm ByteDance, but is within the crosshairs because of fears that it could harvest data from the 100 million-plus Americans that use the platform.

In recent months, we have seen TikTok banned on federal devices and some individual states have also barred the platform on official devices and school campus equipment.

Notably, the Commerce Department has already acquired some additional powers since former president Donald Trump issued an executive order when he was in power and trying to grapple with rising pressure over China and TikTok. Unnamed sources told Bloomberg that the current White House led by Joe Biden is likely to support the bill as it would codify these updated powers.

Democratic senator Warner has described the proposal as a ‘broad bipartisan bill’, which is to be spearheaded on the Republican side by counterpart John Thune, to suggest there is agreement on both sides that tighter controls need to be introduced.

Plus, there are separate bills making their way through the political pipeline that directly target TikTok, with one suggesting Biden should be given the unilateral ability to impose an outright ban on the platform. The Warner Bill, however, is a broader proposal that could also impact other foreign technology companies.

What could prove more significant is that the Commerce Department will be under more pressure to look at TikTok and make a clear decision whether it is a threat or not. The bill says it must ‘identify, deter, disrupt, prevent, prohibit, investigate, or otherwise mitigate’ any national security risks stemming from technology from a list of countries including China, Russia, North Korea, Iran, Cuba and Venezuela.

‘Instead of playing whack-a-mole on Huawei one day, ZTE the next, Kaspersky, TikTok — we need a more comprehensive approach to evaluating and mitigating these threats posed by these foreign technologies from these adversarial nations,’ Warner said.

Is TikTok getting banned in the US in 2023?

Possibly.

The purpose of the Warner Bill is about introducing a legal framework for the US to handle threats from foreign adversaries rather than directly targeting TikTok like some other proposals.

Still, even if TikTok escapes a ban, these new laws would leave it vulnerable to a swift expulsion at any point in the future and this would cast huge uncertainty over the platform. The other proposals that are being put forward with the sole ambition of bringing TikTok down pose an even more concerning threat for ByteDance.

For now, a ban looks like a very real possibility but is not guaranteed.

What does TikTok say about a possible ban?

TikTok has long argued against allegations tying it to the Chinese government. The platform has said it stores all data on US users inside the country, that it has never received a request from Beijing for data, and that it would never comply with one that was made - but that has done nothing to allay the concerns in Washington.

TikTok hit back at the latest proposals and said any ‘US ban on TikTok is a ban on the export of American culture and values to the billion-plus people who use our service worldwide’.  

Notably, TikTok CEO Shou Zi Chew is due to appear before Congress on March 23, which is shaping up to be a critical day for the company that could prove highly influential on how politicians view the platform at this crucial time. A spokesperson for ByteDance said earlier this year that the company welcomed ‘the opportunity to set the record straight about TikTok, ByteDance and the commitments we are making to address concerns about US national security’.

What would a US ban mean for the TikTok IPO?

ByteDance has been hoping to take TikTok public through an initial public offering since 2020, but has not pulled the trigger amid a myriad of headwinds. Plans have been on the backburner for some time now as it is clear that it will have problems convincing both US and Chinese regulators about its listing.

With headline-grabbing valuations of around $50 billion circling around for TikTok, markets have eagerly awaited for it to go public for years but this looks less likely following the latest developments.

ByteDance as a whole is thought to be worth considerably more as it owns an array of other platforms, including but not limited to ‘Chinese TikTok’ Douyin, content search app Toutiao, Indian app Helo and collaboration suite Lark.

You can find out more in Everything You Need to Know About the TikTok IPO.

Notably, the Committee on Foreign Investment in the US said last year that it recommended ByteDance spins-off and separates its US TikTok arm to address the concerns about where data is stored and who controls it.

That suggests officials are open to the idea of ‘US TikTok’ being carved out. That would require an American buyer or for it to be made public through an IPO. Notably, there were talks of a US company, including Oracle, coming in and acting as a ‘trusted technology provider’ to oversee US operations of TikTok when Trump was in charge but this idea swiftly collapsed. An array of other businesses, from Microsoft to Alphabet, have been speculated as potential suitors should US TikTok be put up for sale.

A ByteDance IPO or one involving the entire TikTok platform looks less likely in this environment. It won’t risk going public in the US only to be banned by the government. That also raises the likelihood that ByteDance could go elsewhere, probably Hong Kong, for any public listing. Still, there is potential for US TikTok to go public depending on whether regulatory risks recede or ramp-up.

What stocks would benefit from a TikTok ban?

The introduction of a proper legal framework is undoubtedly a threat to TikTok and foreign companies but would provide a potentially huge boost to US tech companies.  

TikTok has weighed heavily on the minds of executives at US rivals for years. As the fastest social media platform to ever reach 1 billion global users, companies like Meta, Snap, and Youtube have been stepping up the fight for user’s attention. For example, Meta has admitted that TikTok, known for its short-form video model, has reduced engagement on its own platforms and has tweaked its own products, such as the switch to Reels, in direct response to the success of its Chinese rival.

Over 60% of all digital advertising budgets in the US funnels through to social media platforms and TikTok has been the fastest-growing player, according to data from Sensor Tower. To provide context on how big a player TikTok is, advertisers spent around $1.6 billion on the platform in the third quarter of 2022 alone. That represents almost 7% of all the money spent on digital ads in the US during that period.

An outright ban would therefore leave a huge hole as advertisers try to reallocate their marketing dollars. There is a chance that they decide to pullback on spending rather than spend it on other platforms, but there is a good chance that the marketing dollars will follow wherever the attention and engagement shifts if Americans lose access to TikTok.

That means US social media platforms are poised to benefit. Analysts at Bloomberg Intelligence said YouTube, owned by Alphabet, ‘might gain the most user market share among social media peers’ if TikTok was banned in the US, while ‘Meta Reels and other platforms such as Snap and Roblox could also see an engagement boost’.

Notably, streaming companies like Netflix and Disney could also benefit. Both giants have launched their own ad-supported tiers, opening up an entirely new way for businesses to reach customers as they cut the cord and move away from linear TV. Streaming services already account for about 15% of digital marketing budgets and this is likely to grow as the biggest players gain momentum.

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