Market Warnings: ACTUALLY READ THE TIK TOK BAN BILL
Important quotes from H.R.7521 - Protecting Americans from Foreign Adversary Controlled Applications Act
Tik Tok can’t have a U.S. operation, unless ByteDance divests
Everyone’s talking about this, and a Congressperson even said that TikTok’s ban would increase the price of META 0.00%↑ in the discussion before the House’s vote on it.
First and foremost, The bill is called, H.R.7521 - Protecting Americans from Foreign Adversary Controlled Applications Act. In short, it requires that ByteDance needs to sell some portion (as determined by the U.S. president) of TikTok or TikTok is banned from app stores. That’s the surface layer to this.
Second, I apologize for writing in all caps, but I’m getting a little upset at the media’s coverage of this topic since it was kind of hard to find the bill itself, and headlines are suggesting the bill will directly ban TikTok when that isn’t exactly the case. I’ll write a separate Meta News piece on this.
No obvious impact on stocks
I’ll start by saying that this TikTok “ban” bill likely won’t have any meaningful impact on Meta’s stock, or any other stocks in the near-term for that matter.
It’s not obvious anyone would want to buy TikTok as, per NPR, “the prospect of TikTok being acquired by a Big Tech firm raises instant antitrust concerns, since the Biden administration has taken a tough stance against tech industry mergers that serve to inflate the size and influence of already massive companies.”. Mark Zuckerberg has been selling more META 0.00%↑ shares than usual recently, but that barely leaves a dent in their overall valuation. Moreover, why would anyone want to let the world know that they’re meddling with a company that was previously owned by an adversary that poses a national security threat.
I’ll write more about this soon.
It does not directly “ban” TikTok
The gist of it is that it prohibits a business (namely Tik Tok’s U.S. operation) from distributing, maintaining, or providing internet hosting services for the Chinese government, or any adversary that poses a national security. At least that’s precedent it essentially appears to set. That is, Tik Tok can’t have a U.S. branch, unless it is not owned by the ByteDance (or a Chinese government-owned company), as determined by the president.
Here’s what the first line of the summary says on Congress’ website:
“This bill prohibits distributing, maintaining, or providing internet hosting services for a foreign adversary controlled application (e.g., TikTok). However, the prohibition does not apply to a covered application that executes a qualified divestiture as determined by the President.”
The summary also states that ”a foreign adversary controlled application is directly or indirectly operated by (1) ByteDance, Ltd. or TikTok” has been determined by the President to present “a significant threat” to national security. As a result, it allows for the following, per the summary:
“The bill authorizes the Department of Justice to investigate violations of the bill and enforce the bill's provisions. Entities that violate the bill are subject to civil penalties based on the number of users.
The bill requires a covered application to provide a user with all available account data (including posts, photos, and videos) at the user's request before the prohibition takes effect.
The bill gives the U.S. Court of Appeals for the District of Columbia exclusive jurisdiction over any challenge to the bill. Further, a challenge to the bill must be brought within 165 days after the bill's enactment date. A challenge to any action, finding, or determination under the bill must be brought with 90 days of the action, finding, or determination.”
So basically the ByteDance needs to sell their portion of TikTok or TikTok is banned from app stores.
What’s Actually Important To Know: Foreign adversary divestiture precedent
The Protecting Americans from Foreign Adversary Controlled Applications Act could set a precedent on exactly how much “divestiture” is required.
If you read the verbiage above, taken directly from the bill itself, it basically puts “divestiture” at the discretion of the president. Per the bill, an entity is considered to be “controlled by a foreign adversary” if that adversary owns at least a 20% stake.
If it passes the Senate, we’ll need to see what the president says. I don’t know how many public companies in the U.S. owned by adversaries, but if there are many then this could mean trouble for them down the line. I’m not a lawyer, so please let me know if a precedent already exists somewhere, or there’s some moderately well-established jurisprudence.
Side note: I’m upset that 1/2 the front-page articles in Google’s results don’t even link the bill in the article.
I clicked on all of them and tried to find the bill’s name, and it took more than a few minutes. The bill is called, H.R.7521 - Protecting Americans from Foreign Adversary Controlled Applications Act. Please remember this name because it’s very hard to find it when I scroll through Google’s results on the topic.
The “ban” part likely refers to what could happen if the bill isn’t enforced. If enacted, it gives TikTok about five months to separate from ByteDance, or else app stores in the United States would be prohibited from hosting the app on their platforms, i.e., TikTok would be “banned” from those app stores.
You can’t judge a book by it’s cover, so let’s at least start reading it.
Shout out to the 2% of readers so far who click the bill.