Here’s What the Potential TikTok Ban Means for Investors

The U.S. government just approved an aid package for Taiwan, Ukraine, and Israel. But the package had something else attached to it…

It included language to force the sale of social media app TikTok. The app could even face a U.S. ban.

The media has been all over the story about a possible TikTok ban. And here at Chaikin PowerFeed, we also discussed the situation last month. So you likely already know the basics.

But to recap, TikTok is built around a short-form video format where users can create and share videos. And it surged to popularity back in 2020 – particularly with younger folks.

It’s also owned by a Chinese company called ByteDance.

And many U.S. politicians – on both sides of the aisle – don’t like that. They have repeatedly threatened to do something about it for several years.

Last year, the Biden administration banned the app on federal devices. But that wasn’t enough…

Politicians still see the app as a big U.S. security threat. After all, it collects massive amounts of data from the people that use it. And politicians fear the Chinese government could force TikTok to share its data.

So Congress bundled the TikTok sale – or ban – into a “must pass” military aid package.

And now, with a signoff from President Joe Biden, ByteDance will have nine to 12 months to either sell TikTok or face a nationwide ban. (Of course, a legal challenge from TikTok could tie the issue up for longer.)

Today, let’s sidestep the politics of this. We’ll take a closer look at what it means for us as investors…

Folks, there’s no getting around the fact that the U.S. is in a tough spot here.

TikTok does funnel a mountain of U.S. consumer data back to China. But this same broad premise of collecting data is also true for U.S.-based companies like Meta Platforms’ (META) Facebook and Alphabet’s (GOOGL) Google.

Put simply, the Internet runs on data – about what we watch, what we search for, our locations, and just about everything else in our lives.

Before TikTok, U.S. companies were the dominant data collectors in this country. But TikTok changed that.

Now, millions of Americans are sharing personal information with a Chinese company. And they’re often doing so unknowingly.

Unfortunately, solving this dilemma raises a lot of questions about “free markets.”

If the U.S. government follows through with its plan, it’s making a bold statement that successful foreign companies could be at risk of nationalization.

At least that’s how the mainstream media is spinning it. The reality is a bit more nuanced.

You might remember a heated political debate around Smithfield Foods in 2013. Back then, a Chinese company wanted to buy this major U.S. pork producer.

That deal would eventually earn approval. But politicians have struck down others.

In 2017, the U.S. blocked the purchase of chipmaker Lattice Semiconductor by a Chinese firm. The government was worried that a takeover would create a national security risk.

In fact, we’ve even prevented allies from purchasing key strategic assets. And the Biden administration recently vowed to block the sale of steelmaker U.S. Steel (X) to a Japanese company.

Put simply, there’s historical precedent for placing national security concerns above the ideals of the free market. And we’re seeing that play out again today with TikTok.

If history is any indication, a TikTok sale or ban will have little to no effect on broad markets. In fact, it likely won’t change much about the U.S.-China relationship.

After all, roughly 265 Chinese companies are listed on U.S. stock exchanges. And they account for hundreds of billions of dollars of market capitalization.

And with TikTok saying it will legally challenge the ruling, a sale or ban might fall through.

So, enjoy the media spectacle. But don’t let the saber-rattling spook you.

The U.S. and China have been here before.

Good investing,

Vic Lederman