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Will There Be a TikTok Ban? When, Why and What You Should Know.

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The U.S. House of Representatives passed a bill on March 13 that stated a requirement for ByteDance, a reputable Chinese tech company, to ban TikTok in the United States. The legislation, now known as the Protecting Americans from Foreign Adversary Controlled Application Act, was forwarded by the U.S. government Reps. Mike Gallagher (R-WI) and Raja Krishnamoorthi (D-IL) on March 5.

On March 7, the legislation garnered approval from the Energy and Commerce Committee, as it has been concerned over TikTok’s control by a foreign adversary.

As TikTok’s parent company, the bill is to compel ByteDance to sell its stake. Such legislation could lead to the app’s disappearance within six months in the United States. However, the bill also faces challenges in the Senate, which needs to it through to the president before it becomes an official law. Moreover, problems like TikTok’s close ties to China also loom in, adding more reason for lawmakers to ban the app due to possible security risks. Such risks include alleged data spying by the Chinese government.

Although TikTok’s assurance of data protection, such as its very own Project Texas, is known, suspicion of user privacy is still a big concern for many in the U.S. government. While ByteDance has assured the public’s worries about data privacy and social media impact are unfounded, analysts still see that targeting TikTok for a ban is not a full solution.

In fact, whether foreign or domestic companies, such agencies have avenues to access sensitive information from the U.S. through digital trade. Therefore, sanctioning only one app will not address broader issues.

The Passed Bill on TikTok Ban

The bill proceeds to the Senate amid uncertainty, with senators divided on its fate and previous attempts to ban TikTok stalling. A TikTok spokesperson criticized the secretive process, hoping the Senate would consider the impact on the economy and millions of users. TikTok CEO Shou Zi Chew conveyed disappointment, stating the bill favors rival social media firms and harms creators and small businesses.

Chew assured users of TikTok’s ongoing efforts to safeguard their data and platform integrity. He highlighted the potential consequences of the legislation, expressing TikTok’s commitment to legal action to protect its platform. President Biden, previously an advocate for the bill, pledged to sign it if passed, with the White House offering technical assistance in its development and passage through Congress.

Despite House members asserting that the bill doesn’t ban TikTok, it mandates ByteDance divest the app within six months to keep it available in the United States. If passed, app stores and internet hosts would be barred from supporting TikTok and ByteDance-related apps. Lawmakers cited national security risks due to alleged ties to the Chinese Communist Party, claims refuted by Chew during congressional hearings.

However, organizations like the ACLU and Knight Institute oppose the bill, fearing it infringes on First Amendment rights. Trump expressed concerns that banning TikTok would benefit Meta (NASDAQ:META).

Donald Trump’s remark, labeling Facebook an “enemy,” stood out, given his past efforts to remove TikTok over national security concerns. In 2020, his administration urged ByteDance to divest the app, prompting Microsoft (NASDAQ:MSFT) to consider acquisition. If the TikTok bill passes, Angelo Zino suggests its U.S. operations could be valued at over $60 billion.

Zino speculated that ByteDance might opt to cease TikTok operations in the U.S. Keith Rabois, a notable venture capitalist, warned against Republicans opposing the TikTok legislation. TikTok creators explored diversifying their brands amid the looming ban.

Biden Is Pro-Tiktok Ban

Upon joining TikTok before the Super Bowl, President Joe Biden’s inaugural post sparked interest, dissected by political scientist Maggie Macdonald for its self-awareness. Biden’s entry into the platform amid debates over TikTok’s presence in the U.S. underscored its dual role: a campaign tool and a security concern.

The House Select Committee on the Chinese Communist Party proposed a bill mandating ByteDance to divest TikTok, threatening a U.S. ban. The bill advanced to the House floor following a unanimous 50-0 vote. Rep. Troy Balderson labeled TikTok a CCP surveillance tool, while Mr. Chew refuted any connections. TikTok criticized the move, citing potential infringements on free expression and economic impact.

Since Biden’s lighthearted debut, his TikTok campaign amassed 274,700 followers and 3.2 million likes. As he faces a tight race against Trump, Biden aims to engage younger voters, crucial for mobilizing traditional Democratic support. Social media expert Aaron Earls emphasized Biden’s direct voter interaction for increased youth turnout.

During the State of the Union address, the president’s team shared speech clips on TikTok, signaling his commitment despite legislative concerns. White House Press Secretary Karine Jean-Pierre endorsed the bill, emphasizing outreach while ensuring national security measures. Biden pledged to sign if Congress approves. TikTok rallied users after the bill’s House advancement, prompting calls to lawmakers’ offices.

When Will the Senate Vote for the Bill?

The Senate’s stance on the bill remains to be determined. Senate Majority Leader Chuck Schumer (D-NY) hasn’t committed to scheduling a vote despite bipartisan House support and the White House urging for prompt action. Senate processes typically move slower, and senators are set for a two-week break. Sen. Mike Rounds (R-SD) doesn’t anticipate immediate action, while Sen. Kevin Cramer (R-ND) suggested a prolonged timeline.

The Senate Commerce Committee currently holds the bill, where similar proposals have stalled. Still deciding the legislation, the group’s chair, Senator Maria Cantwell (D-WA), mentioned the possibility of a hearing and potential revisions. Cantwell emphasized the need for constitutional adherence but didn’t outline a timeline. Critics argue the bill infringes on the free speech of TikTok’s 170 million users, prompting calls for careful consideration from lawmakers like Sen. Ron Wyden (D-OR).

Sen. Ted Cruz (R-TX), the leading Republican on the Senate Commerce Committee, urged Chair Cantwell to schedule a markup swiftly. Cruz highlighted the need to discuss the bill’s language and potential amendments. However, the bill’s fate remains to be determined in the Senate, with Sen. Mark Warner (D-VA) expressing uncertainty about the timeline for any related legislation.

What if the Bill Passes?

If the House bill clears the Senate and gains presidential approval, it will be enacted into law. The legislation would then force ByteDance to face a TikTok ban within 180 days if it doesn’t sell its interest. However, for users doing business on TikTok, the bill could pose some financial and regulatory dilemmas.

Mr. Chew also addressed some challenges during discussions with U.S. lawmakers. He remarked that complying with the bill’s requirements was impractical and would ban the app nationwide. Previous attempts to restrict TikTok broadly in the U.S. failed, such as Montana’s ban, which a federal judge deemed unconstitutional.

Banning TikTok May Not Have Any Difference

Calli Schroeder, a senior counsel at the Electronic Privacy Information Center, views attempts to ban TikTok as mere “security theater.” Legislators push such measures to appear proactive despite knowing they don’t tackle the core issues. Banning TikTok wouldn’t substantially impact China’s access to American data.

While TikTok is already prohibited on federal and state-issued devices in many states, previous attempts like Montana’s ban faced legal challenges due to constitutionality and freedom of expression concerns.

Kate Ruane, an attorney at the Center for Democracy and Technology (CDT), emphasized that banning TikTok won’t enhance data security. Numerous apps, including those owned by Chinese companies like WeChat and Alipay, also collect and distribute user data globally. Anne Toomey McKenna, a cyber law and privacy professor, suggested that singling out TikTok seemed more like political theater than adequate data security and privacy legislation.

Numerous foreign and domestic tech companies, including LiveRamp (NYSE:RAMP), gather vast amounts of user data and then trade it globally by third-party brokers.

Data collection extends from smartphones and smart speakers to connected cars and dating apps. Social media platforms like Facebook and Instagram may appear free, but users pay with their data.

These anonymized data, theoretically used for targeted advertising, often contain detailed personal information. A study found about 2,230 companies shared users’ data with Facebook. Governments worldwide, including the U.S., leverage these data markets to access extensive personal information without traditional legal processes.

Bottom Line

According to Politico, the Federal Trade Commission probed TikTok and ByteDance for misleading U.S. users about data access by individuals in China. Alleged violations of children’s privacy laws were also investigated. With the Justice Department, the FTC may litigate or negotiate a settlement.

Even if the Senate approves the bill, TikTok plans to explore legal options before considering selling its U.S. operations. Former Treasury Secretary Steven Mnuchin expressed interest in assembling a group to buy TikTok. However, major tech firms like Meta and Microsoft may refrain due to antitrust concerns.

Any sale would also need Beijing’s approval, and the buyer might not gain access to TikTok’s proprietary algorithm. TikTok investors eye an IPO, but its value could decrease if it exits the U.S. market.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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