USA vs. China – Mountains and Molehills

A mountain is being made of a molehill

• The deal with China over TikTok looks set to close in the only way that it could ever have done, but the press is making such a fuss that a relatively straightforward compromise is being dressed up to look like a massive defeat for the USA.
• The situation is relatively simple in that the USA decided some time ago that having a Chinese company controlling an app that is in widespread use by over half of the US population was an unacceptable societal risk as well as a risk to national security.
• Thus, it was decided that to continue functioning in the USA, TikTok had to be severed completely from its owner, ByteDance, to remove any influence the Chinese state might have over what users are served and what happens to the data that TikTok collects.
• TikTok is unique in that it uses an algorithm created by ByteDance that parses uploaded content and matches it with the knowledge graph of users to provide them with the content that they are most likely to like.
• There is little doubt in my mind that the ByteDance algorithm is the best at what it does because if it were not, it would have been replicated and replaced by Meta Platforms and Snap, and TikTok would no longer be a thing.
• This is where the sticking point to selling TikTok has been all along, as amendments to China’s National Security Law of 2015 make it illegal to export critical technology without a license from the Chinese state.
• This created an unsolvable problem in that TikTok would only be able to continue to function by using the ByteDance algorithm that had become illegal to export.
• China has been unwilling to allow the algorithm to be exported on a permanent basis, and at the same time, was keen not to see TikTok outside of China collapse.
• This is the political football that has gone round and round in circles for some years, but it now appears that a compromise has been reached, which is the only one that would not end in TikTok being banned or collapsing.
• China will now allow the algorithm to be exported, and in return, it gets the kudos of being the only possible supplier of technology of this quality, which is a big deal.
• The US gets to remove China permanently from TikTok, meaning that the scope for data leakage and manipulation has been greatly reduced in its eyes.
• The way I think that this will work is that TikTok ex-China, now owned by non-Chinese investors and companies, will get a current copy of the algorithm at the point of the deal closing.
• It will then be on TikTok ex-China to update, maintain and improve the algorithm as the service evolves and the market develops.
• In effect, the Douyin (China TikTok) algorithm will be split into two, with Douyin’s copy going one way and TikTok’s the other.
• This is a relatively simple solution, and the trick was to convince China to see the benefit of the transaction rather than the stigma of being removed from the US market.
• I am pretty sure that there are a number of other compromises that have been made to get China over the line, and I don’t know if we will ever find out what these are.
• The net result is that there is not that much to see here.
• This is not a defeat for the USA or China but a compromise where each side has given a little, got something in return, meaning that TikTok will continue to be a force in social media.
• This will have some bearing on the tariff negotiations that are currently ongoing, and in my opinion, serves as a sign that there is some willingness on both sides to get a deal done.
• This is good news for ByteDance, which will now receive cash for TikTok in contrast to the other possibility, which was the company collapsing and no cash arriving.
• Consequently, I do not see this as affecting the ideological struggle that is ongoing and being fought in the semiconductor industry and increasingly now in AI.
• Here, I continue to think that the advantage that the USA has is not in how advanced the AI it can create is, but in how cost-effectively it can do so.
• This won’t make much difference in China or the USA, but in non-aligned countries that have to make a choice, this could make all the difference.
• This is why I think that the USA and the West currently have, the advantage, but it is still very early days.