Decoupling creep in US-China tech
TikTok is a test case—though not an ideal one—and it’s not looking great
Today I’m sharing a piece I published last month in the subscriber-only tech publication The Information. I’m grateful for the skilled editorial eye of The Information’s Jillian Goodman and for permission to share this piece more broadly. I’ve adjusted some time elements [in brackets], but otherwise the piece is unchanged.
I am not a big fan of predictions, coming from a journalistic and scholarly background where the main job is to nail down what is or once was true, but this piece lays out two assessments more sharply than I usually do. First, despite a rare reopening of diplomacy, “decoupling creep” shows no sign of slowing in tech fields, and there’s no “floor” in sight. And second, TikTok is most likely doomed in its efforts to continue operating in the United States with Chinese ownership, despite its extraordinary efforts to reach a deal with CFIUS. I got some good feedback from initial publication, but I’m hoping this audience will share their thoughts—agree or disagree—directly or online.
Finally, a programming note: Without planning or promising a publication schedule, I have accidentally landed on a weekly rhythm since relaunching last month. I expect there will be more variance going forward, but your comments, attention, and encouragement keep me coming back.
TikTok Is the Canary in the U.S.-China Coal Mine
Diplomacy has done little if anything so far to restore trust in tech between the two rival powers.
By Graham Webster
Original publication: Nov. 16, 2022 9:00 AM PST, The Information
With U.S.-China relations at their lowest point in decades, President Joe Biden went into his meeting [on Nov. 14] with China’s top leader, General Secretary Xi Jinping, looking to “build a floor for the relationship.” The long-delayed meeting looked like it could prove to be a turning point in bilateral diplomacy, but in the tech sphere, the bottom is nowhere in sight.
Over more than a decade, U.S. and Chinese policymakers have come to recognize that the two countries’ deep interdependence in digital industries poses novel security risks. Tech ecosystems have thrived on cross-border supply chains and collaboration among designers, engineers and manufacturers in the two countries, yet those close ties could be weaponized. Supply chain disruptions caused by crises or governments could cripple major firms. Intelligence services could leverage their access to services or products for spying or sabotage. This potentially destabilizing mutual vulnerability calls for a little bit more independence.
How much should the two countries distance themselves? China has long blocked U.S. social media platforms that don’t meet government demands for censorship or access to user data, key national security concerns in the authoritarian state. Hardware has also been an issue; by 2012, the U.S. government had identified Chinese network equipment firms ZTE and Huawei as potential national security threats. The Trump years brought tariffs and an accumulation of export controls on the U.S. side as Xi revived Cold War language about “self-reliance.” A partial separation of the countries’ tech ecosystems, broadly called decoupling, had begun.
[In October], after putting in place incremental measures sanctioning businesses associated with human rights abuses in Xinjiang or with the Chinese military, the Biden administration did something radical, banning the sale of the most advanced semiconductors and chipmaking tools to China. The U.S. goal was no longer simply to stay a few steps ahead, National Security Adviser Jake Sullivan said in September, but to “maintain as large of a lead as possible” in the “foundational” technologies fueling future advances, from new weapons to genomics to anything that leverages the best graphics processing units to train large models.
Just as mission creep can create an expensive quagmire that helps no one, decoupling creep could unravel industries, innovation ecosystems and peace-preserving interdependence if it goes too far.
At their [November] meeting, Biden spoke of vigorous competition while avoiding conflict, and Xi said bilateral ties “should not be a zero-sum game.” They expressed intentions to work together on transnational problems such as climate, global health and financial stability. And they announced that the U.S. Secretary of State would visit China in the future, signaling persistent renewed contacts. Yet neither government’s account of the meeting, nor their broader behavior, suggests they have a plan for mitigating tech vulnerability without cascading toward maximal separation.
Just as mission creep can create an expensive quagmire that helps no one, decoupling creep could unravel industries, innovation ecosystems and peace-preserving interdependence if it goes too far. Moreover, since technology is core to both the conflicts our countries wish to avoid and the common cause both leaders seek, unchecked decoupling could bust a hole in any floor diplomats labor to erect.
TikTok Is a Pioneer, Like It or Not
One of the most ambitious efforts yet to swim against the tide of U.S.-China tech decoupling has been TikTok’s attempt to keep doing business in the U.S. while still owned by its Beijing-based parent company, ByteDance. The Trump administration, seeking to look tough ahead of the 2020 election, issued an executive order that would have effectively banned the frenetic social platform from the U.S. over data security fears unless it was sold to domestic owners. Courts blocked the legally sloppy order, but the interagency Committee on Foreign Investment in the United States was already examining TikTok for national security risks, and its review continues.
This September, The New York Times reported that CFIUS and TikTok had at last reached the broad strokes of a deal that would allow TikTok to keep operating without ByteDance having to sell it. To address the perceived risk that Chinese intelligence services could hoover up user data, that information would be stored exclusively on U.S. servers, “probably run by Oracle,” according to The Times. To address concerns that the Chinese Communist Party could pressure ByteDance to manipulate TikTok feeds and interfere with U.S. discourse, Oracle would also have a role in auditing TikTok’s algorithms. And to provide further assurances, a board reporting to U.S. authorities would oversee TikTok’s U.S. operations.
In principle, this arrangement is a reasonable innovation. Although experts disagree on the nature and magnitude of the risks TikTok poses, preventing the large-scale collection of U.S. personal data to fuel Chinese intelligence services is a legitimate U.S. government interest. And while manipulating public opinion with tweaks to a social algorithm is harder than it might sound, it’s not ridiculous to imagine Chinese actors might give it a try.
I and many others have argued that these risks should be dealt with across all platforms, regardless of their ownership. The data broker economy gives foreign adversaries, fraudsters and indeed U.S. law enforcement access to revealing private details of U.S. citizens’ lives, and foreign ownership isn’t the only way to effect an insider threat. Since comprehensive data protection and algorithmic governance are not forthcoming in the U.S., however, TikTok is left with the one-off challenge of convincing a skeptical government that data localization and supervision can mitigate the real or perceived risks of Chinese ownership.
It’s a challenge many other companies may yet face. Reaching a deal with CFIUS or another U.S. authority could become a way to keep U.S. markets open while identifying and mitigating legitimate security risks. In fact, convincing CFIUS—which includes members from the Departments of Defense, State and Homeland Security—that your platform meets a national security bar is more than any U.S.-owned platform has likely done.
Yet there is reason to believe no amount of effort and restructuring on the part of TikTok will satisfy U.S. critics in the long run. Sen. Marco Rubio and Rep. Mike Gallagher last [month] wrote in The Washington Post that they would introduce legislation to ban the app from the U.S. unless it is sold to a domestic concern. Their op-ed paints speculative risks as certainties and overplays the threat of imminent U.S.-China war over Taiwan, but it represents views that are arguably mainstream among Republicans and ascendant among Democrats. Meanwhile, despite its efforts to work out a deal with Oracle and the U.S. government, TikTok is not exactly the ideal proof of concept for a cross-border business, as a string of media reports has alleged problematic management practices going back years.
Even if TikTok successfully and transparently cleans up its act and reaches a deal with national security authorities—a solution Rubio and Gallagher reject—the platform’s days of operating with Chinese ownership in the U.S. market are almost certainly numbered. A change in presidential administration, control of Congress or the direction of geopolitical winds could blow up any deal made now.
How to Arrest Decoupling Creep
In many ways, TikTok’s story will sound familiar to U.S. companies that over the years have found it functionally impossible to compete in the Chinese market. Google famously shut down its China-market search engine in 2010 after it attributed network intrusions to Chinese spies targeting dissidents. Microsoft shut down LinkedIn in China amid complex regulatory burdens. A rare exception, Apple has gone to great lengths to operate its iCloud and App Store businesses in China, even as doing so has wedged the company between an authoritarian government and human rights principles, a position made all the more difficult due to its reliance on Chinese supply chains and on “Greater China,” as the company’s balance sheet puts it, for almost 19% of its annual revenue in recent years.
Reasonable people will differ on what the ideal outcome might be. Those looking for renewed diplomacy to reaffirm bilateral tech and economic ties should not be overoptimistic, and those who believe the U.S. and China should do as little business as possible still have a long way to go before they’ll be satisfied. Decoupling creeps on, even as bilateral trade in goods has exceeded $500 billion each year for the last decade.
One rare sign of bilateral pragmatism was the deal announced in September that allowed Chinese firms to remain listed on U.S. stock exchanges. U.S. authorities had long looked the other way and allowed Chinese firms to list shares in New York without having their audits verified because the Chinese government claimed the auditing records were state secrets, until a 2020 U.S. law required the Chinese firms to fall into line or face delisting. After months of obstinacy on both sides, China gave in, promising to allow U.S. teams access to key records in Hong Kong.
This painstaking negotiation saved one major bridge between the two countries at a time when they are dismantling many others. Some bridges will fall, but we should not abandon efforts to build new ones with national security and human rights incorporated. It would be tragic if American and Chinese citizens were deterred from putting their heads together to navigate the mounting climate, public health and security challenges humanity faces—like it or not—as one.
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About Here It Comes
Here it Comes is written by me, Graham Webster, a research scholar and editor-in-chief of the DigiChina Project at the Stanford Cyber Policy Center. It is the successor to my earlier newsletter efforts U.S.–China Week and Transpacifica. Here It Comes is an exploration of the onslaught of interactions between US-China relations, technology in China, and climate change. The opinions expressed here are my own, and I reserve the right to change my mind.