TikTok — a social video-sharing service based in China best known for videos and animations that are less than a minute long (up to :15 for videos and :60 for loops) — is getting a lot of attention these days. Especially with the recent news that they’re suing the U.S. government.
The back story
In 2017, a Chinese internet company called ByteDance launched TikTok and the following year it was merged with Musical.ly, a ByteDance acquisition — which was known primarily for lip syncing videos (exactly what it sounds like). A separate version called Douyin that was made for the Chinese market was launched in 2016.
But by the end of 2018, TikTok was the most downloaded in the photo and video category in the Apple app store, globally. The service was popular with teenagers and young adults but during the worldwide coronavirus quarantines earlier this year, it surged in popularity as folks were looking for ways to pass newly found downtime. It attracted huge followings in the United States and other countries around the world so much so that in August, TikTok surpassed 1 billion users. Add that in with Douyin’s 500 million monthly active users (MAU) and that makes for a ton of short attention span videos.
What’s going on now
On Aug 6 of this year, U.S. President Donald Trump threatened to ban TikTok unless it was acquired by a domestic company. As of this writing, Microsoft is the still leading contender to buy their global operations — it has the war chest and organizational resources to do it. Sure, there have been murmurs about Oracle and Twitter among others having had preliminary conversations as well but what’s happening with TikTok really exemplifies the whole of the current relationship between our countries.
And it’s not the first time that the U.S. has applied pressure to China in this way — previously, mobile phone manufacturers Huwai and ZTE as well as the dating app Grindr (bought by Beijing Kunlun in 2016 for $93 million and then sold in 2020) have been held up as examples of national security threats.
A trade war has overtaken both sides while we are each working to disentangle our supply chains and there is an increasing list of issues pitting one side against the other (a kind of pissing match between the world’s largest economy versus the world’s second largest economy): consulates have been closed in both countries, journalists have been expelled, Chinese researchers have been implicated in charges of fraud, unsubstantiated reports about China trying to steal or block vaccine research, and the U.S. has sold $8 billion worth of advanced F-16 fighter jet to Taiwan just to name a few recent events.
To call the status quo complicated is an understatement.
But to say this is only about trade imports and exports, that’s some of it, but there’s the whole rest of the forest too — national and international defense, dueling political ideologies, human rights issues (religious minorities in “reeducation camps” in remote parts of Western China), and growing worldwide demand for consumer products and technological advances. And when we look at it through the lens of the deteriorating relationship between our countries — not exactly friends, not exactly enemies — it makes more sense why it’s becoming more and more adversarial in competing for talent, investment, and markets.
The list of companies who are increasingly dependent on opportunity in China is growing — Intel, Nike, Apple, Ford, Tesla, Boeing, Qualcomm, Uber, AirBnb, and the three companies mentioned previously who are in talks with or rumored to have had conversations about acquiring TikTok among others. In order to even operate in China, U.S. companies must censor their content and open their code bases, often changing their products or service offerings to fit the Chinese government’s strict measures. Most companies choose this trade-off because of the market potential in China.
“Our economic interests with China are significant and growing. China is a $600 billion market for the American economy.” — Jacob Parker, vice president of the US-China Business Council
And making your product in China has certain benefits — cheap labor, low taxes, logistical ease (getting things in and out of the country), low crime (compared to other emerging markets), and inexpensive energy costs.
And it’s not just a one-way street where the U.S. wants access to the Chinese markets. Recently, there have been a number of Chinese groups who’ve invested in American companies. Tencent is a major investor in Reddit, for one. Wanda Group owns both AMC Cinemas and movie studio Legendary Entertainment. WH Group — formerly known as Shuanghui International — owns Smithfield Foods, having purchased the Virginia-based company for $7.1 billion in 2013. Then, in the following year, Lenovo bought Motorola Mobility. And Qingdao Haier Co. bought General Electric’s appliance business after the U.S. government said it would try to block a deal for the division to be bought by Electrolux in 2016.
Okay, what now?
Our relationship with China hasn’t looked so rocky in decades and I believe we need to rethink the whole paradigm. We need the right people working on the right things with the right effort. Start by asking, What’s the best return on investment? And then doing that first thing. Then, the next thing with a good ROI.
“[America’s] best engineers are optimizing how to get cat videos … We have sat back and assumed that our hegemony is infinite.” — Trae Stephens, partner at Founders Fund
Have you heard of Made in China 2025? This plan was published five years ago and was aimed at rapidly developing 10 high-tech industries, including electric cars, next-generation information technology, telecommunications, advanced robotics, and artificial intelligence (AI). The plan’s goals was to achieve levels of self-sufficiency — 40% by 2020 and 70% by 2025 — in high-tech industries. This would result in dominant positions in global markets by 2049, one century after the founding of the People’s Republic of China.
And China’s not alone in this vein — there was Plattform Industrie 4.0 in 2011, which was successful in increasing Germany’s national industrial capacity, and Make in India in 2014, an initiative to encourage manufacturing in the country.
So where’s America 2030 or some such thing? How are we going to stay competitive and get ahead? Where’s our plan?
The fact is that China is outpacing us right now, literally running laps around us. And I’m not trying to start a chant, “USA! USA! USA!” I don’t think it works when there’s one monolith that chugs through, smashing everyone else in its path. And not just China, I could be pointing at the U.K. or Brazil or Mexico or even the U.S.
So, how does the U.S. level up and compete with China as well as the rest of the world? Collaboration and competition are good things, I believe, when applied in the right ways.
This should be a wakeup call, TikTok is just the most recent piece of the much more complex puzzle.