TikTok Saga Is No Victory for US but Defeat for Its Once Open Markets

The United States has long been synonymous as a place where anyone from any background, nationality or gender can achieve success. This idea has helped cultivate some of the greatest businessmen and women in history, and some of the most innovative and exciting companies of today.

It has made the “American Dream” a worldwide slogan for possibility, built on the foundations of a free and open market system, one that American’s have been proud to call the best in the world.  It has driven entrepreneurs and businesses from across the globe to its shores, bringing big and bold ideas that when successful have bestowed rich rewards for companies and consumers alike.

No doubt it was what drove Zhang Yiming, Chinese entrepreneur and founder of popular video-sharing app TikTok to expand into the American market in 2018. His vision of a joyous and creative platform has gone on to become one of the most popular video-sharing apps in the country, helped by a market system that allows such success to prosper.

National security a cover for TikTok removal

What should have been another success story however has over recent weeks turned increasingly sour. Zhang and his company ByteDance have found themselves caught in the middle of a political containment by the US on China, embroiled by accusations of spying and labelled a threat to US national security.

Things have sunk so low that TikTok is now in danger of being banned from the US market altogether unless it and US tech-giant Microsoft can find an agreement by September 15. Trump has been adamant that a “very American company” should invest or buy TikTok, hence the call to the granddaddy of the US tech industry to help address the perceived risks associated with TikTok handling US data.

Despite no security concerns being raised previously and no evidence to substantiate any of the claims against it, TikTok’s American Dream is fading fast unless it can pull off a deal with Microsoft. As a result, there will be some, especially those with worries against Chinese technology, who will revel in the company’s misery. But for foreign businesses and American consumers, the idea should leave them with a feeling of dread.

Ploy to keep US-tech great

Because what foreign company or investor will now feel confident about doing business in the US?

The Trump administration has in theory forced a successful, non-American company into a partial acquisition or possible complete takeover based on unsubstantiated hearsay. There has been no investigation, nor any shred of evidence provided to justify such action. There hasn’t even been a bidding process to see which company would be best suited to acquire part of TikTok, with Microsoft seemingly thrust into the role at Trump’s instruction.

While some have simply viewed the current saga as an escalation of the US’ anti-China position, it has also undoubtably showed the extreme levels the Trump administration will go to ensure US technology firms are protected from all outside competition, to the detriment of what made America’s open markets so free in the first place.

Further blow to foreign companies & US consumers

Foreign companies have increasingly questioned how far the Trump administration will go to stop outside competition, voicing their concern by reducing their investment in the US, which has shrunk from $440 billion in 2015 to $296 billion in 2018, and shrunk further in 2019. According to Bureau of Economic Analysis, expenditures by foreign investors to acquire, establish or expand the US businesses was $194.7 billion in 2019, a sharp fall of 37.7 percent from $312.5 billion in 2018. With the latest saga, they now have their answer and the parameters they must abide by; Come to America, become successful but don’t become too successful or we will find ways to curtail it.

For American consumers however, the decision could be even more hard hitting. Foreign businesses provide a much-needed injection of competition into US markets, which have become less open and increasingly dominated by big industry, causing prices for them to rise dramatically.

The fault for this lack of competition does not lie solely at Trump’s door, although he has exacerbated it since becoming president. As early as 2000, small incremental changes have been altering the US markets, making them less open and free from competition. Changes to the length of time needed to legally register companies has increased, while antitrust enforcement has become less stringent, allowing monopolies to set pricing at the expense of the consumer. Complicated regulations have also made it impossible for companies to navigate endless red tape without the help of deep pockets, leaving only large enterprises big enough to comply.

“… US markets have become less competitive: concentration is high in many industries, leaders are entrenched, and their profit rates are excessive,” economist Thomas Philipin wrote in his book The Great Reversal: How America Gave Up on Free Markets.

Trump policies stifling competition

But throughout Trumps presidency, he has looked to further stifle all forms of competition.

Reviews by the Committee on Foreign Investment in the United States have increased under the Trump administration, while revisions to regulations implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), have become more stringent, with their rules increasingly broad and wide ranging, reducing the number of foreign takeovers.

Record tax cuts for big businesses through revisions to US federal tax laws have also helped build stronger monopolies in the country, as has removing price caps in sectors where competition is non-existent. In the US internet sector, where some areas have but two providers to choose from, Trump has overseen the reverse of price caps on broadband fees, which as a result has seen costs skyrocket.

These actions have cost the US its place as the most competitive economy in the world, according to the Institute for Management Development (IMD) in Switzerland. As recently as 2018, the IMD ranked the US as the number one competitive economy, but in just two years it has fallen to 10th, with analysts citing Trumps policies as having “negatively affected the nation’s competitiveness.”

The tech industry, where TikTok had been making such a splash, is a prime example of how American markets have been controlled by just a few companies. The GAFAM’s of Google, Amazon, Facebook, Apple and Microsoft dominate the market to such an extent that smaller companies have been gobbled up in their wake. The July 29 US House judiciary hearing between members of Congress and leaders from Apple, Facebook, Google and Amazon highlighted the obscene lengths these companies have gone to in order to strangle competition. And yet now it seems they have an ally in the White House who is prepared to do their bidding for them.

“Open markets are predicated on the idea that if a company harms people, consumers, workers, and business partners will choose another option,” House antitrust chair David Cicilline said as he opened the hearing. “We are here today because that choice is no longer possible.”

The fallout of TikTok’s case may see it at best fall partially into the hands of a rival, or at worst leave the US market altogether. Such is the US hostility to China right now that many Americans will celebrate this as a victory for their “home grown” talent at the expense of an alien company. But these actions are a detriment to the features and qualities that made American markets—until recent years—the most competitive and open in the world.

TikTok will ultimately survive this case such is its popularity in other countries, while US tech will go on to dominate further, both at home and abroad. But for American consumers, the lack of competition will ultimately leave them with poorer and more expensive services. And no one will be celebrating when that time finally comes.