TikTok Ban Push Gets Lift From Chinese Balloon

The discovery of a suspected Chinese surveillance balloon over the United States has galvanized lawmakers' efforts to ban TikTok, the fast-growing social media app owned by Beijing-based ByteDance, a move that could buoy U.S. rivals.

Such a ban would likely benefit U.S. social media networks owned by Meta Platforms (META) and Snap Inc. (SNAP), as well as Alphabet's (GOOG, GOOGL) YouTube video platform. Conversely, it could hurt Oracle (ORCL), the U.S. operating partner TikTok chose to address U.S. security concerns.

"A big Chinese balloon in the sky and millions of Chinese TikTok balloons on our phones. Let’s shut them all down," U.S. Senator Mitt Romney tweeted the day before a U.S. fighter jet shot down the balloon off the Atlantic Coast, summarizing an emerging consensus among Republicans.

Republican senators Marco Rubio and Josh Hawley have filed separate bills banning the TikTok app. Senate Majority Leader Charles Schumer, a Democrat, said Sunday a TikTok ban is "something that should be looked at."

Pressure on TikTok has been building for months amid increased geopolitical rivalry between the U.S. and China, and fears that China's government can access U.S. users' browsing and location data. There have been repeated revelations that ByteDance executives have accessed U.S. user data, despite a deal to ring-fence TikTok operations under a U.S. subsidiary.

In December, FBI Director Christopher Wray said TikTok is under the control of a Chinese government "that doesn't share our values" and could use user data for espionage or to influence U.S. public opinion through the video recommendation algorithm. The same month, Congress outlawed TikTok on government-issued devices.

Wray's public warning piled pressure on the TikTok review currently underway by the Committee on Foreign Investment in the U.S. (CFIUS), the government panel that can block foreign acquisitions of U.S. companies on national security grounds. President Joe Biden directed the CFIUS review in a June 2021 executive order revoking a previous one by President Donald Trump attempting to isolate ByteDance.

TikTok said last June it started routing all U.S. user traffic to Oracle's cloud service to allay data privacy concerns. The app has since proposed additional safeguards, including oversight of its recommendation algorithm by Oracle and third-party engineers. The offer was reportedly intended to break a stalemate holding up CFIUS approval of TikTok's operating arrangement with Oracle. Some experts have said it would be difficult to detect changes in TikTok's algorithm intended to promote particular content.

The loss of TikTok's heavy traffic in the event of a U.S. ban would hurt Oracle's bottom line and cloud aspirations. At the same time, it could provide a welcome boost to Meta's Facebook, which has patterned its Reels short-form video feature on TikTok. Meta paid a Republican consulting firm to orchestrate a covert nationwide campaign portraying TikTok as a danger to American children and society, The Washington Post reported last year.

Snapchat has also sought to emulate TikTok's success with short-form video, as has YouTube. TikTok's popularity with young adults and teenagers has made it the fastest-growing social network, and the third largest in terms of U.S. monthly active users.

Some experts say the security concerns surrounding TikTok are exaggerated. Others have warned that an outright ban would be difficult to enact and enforce, and would turn the Internet into a "Splinternet" with a fenced-off American version akin to China's Great Firewall.

The Biden administration has so far resisted making the choice between a ban backed primarily by Republicans or accepting TikTok's assurances of U.S. user privacy and national security.

In the meantime, the Biden administration has been considering restrictions on U.S. investments in Chinese companies. ByteDance investors include U.S. venture and private equity firms including Sequoia Capital, Great Atlantic, KKR (KKR), Goldman Sachs (GS), and Morgan Stanley (MS).

TikTok CEO Shou Zi Chew is set to testify about the company's data protection practices before the Energy and Commerce Committee of the U.S. House of Representatives on March 23.