Perspectives

from the Lincoln University School of Business

Issue 9: April 30, 2024

Welcome to the LU School of Business’s Perspectives newsletter, bringing you contemporary and evidence-based business perspectives from our faculty.

The Implications of the United States TikTok Ban on American Businesses and U.S. Global Competitiveness

The TikTok logo is displayed at TikTok offices in California. Source: GETTY IMAGES

Currently, TikTok has about 170 million users in the United States — some of these are American content creators and small businesses who are selling goods and services on the popular social media app. By signing legislation to ban the TikTok application in the United States, if the company owners refuse to divest and bring the popular social media app under American ownership allegedly because of national security reasons, the United States government has opened a new, uncharted terrain amongst the comity of nations who believe in free trade.

As a founding member of the General Agreements on Tariffs and Trade (GATT), along with China, and co-members of the World Trade Organization (WTO) with China, the United States has a lot of tools at its disposal to bring TikTok, and by extension China, into global trade compliance. GATT and the WTO are two of the strongest tools that the United States can use to reduce trade friction with China and ensure it complies with the trade agreements that it has ratified. Holding China accountable to its GATT and WTO obligations is what the United States has not done effectively, which is why some in the U.S. leadership today have resorted to selective outrage as in the case of the TikTok ban rather than confront the main issue — the lack of Chinese accountability towards its ratified obligations under GATT and the World Trade Organization regulations. 

Now, some have suggested that China was served exactly what it deserves because China has repeatedly made it difficult for American companies like Google, Meta and X to thrive in China. Because America has thrived as a result of free trade, this is precisely the reason why the United States should not engage China on those terms. Instead of banning TikTok in the U.S. and jeopardizing millions of jobs and revenue that goes to over 7 million small businesses across the USA, the United States should start working with the WTO to enforce trade regulations that China has freely ratified. For emphasis, it is important to remind the global trading community about the foundation of the multilateral trading system that underpins today’s liberal economy. The WTO operates based on five key principles that are the foundation of the multilateral trading system, disallowing discrimination between its trading partners or between domestic and foreign products, promoting free trade through the reduction of trade barriers by negotiation, maintaining predictability and stability in the multilateral trading system by creating binding commitments, supporting fair competition by creating a level playing field for all its members and encouraging development and economic reform for Least Developed Countries (LDCs). The United States and its allies need to hold China accountable to these standards instead of acting like China. 

Implications on Meta, Amazon, Apple, Tesla, Oracle

According to Forbes, China accounts for 19% and 22% of Apple’s and Tesla’s respective global revenues during their latest fiscal years, and the Financial Times reported a $16 billion TikTok revenue in the United States for the 2023 fiscal year. Because the United States claims to be a steadfast supporter of the rules-based multilateral trading system that governs the WTO and has a strategic interest in protecting and advancing the economic interests of American businesses and workers while opening foreign markets, it will be in American interests for the U.S. supreme court to rule the TikTok ban as unconstitutional and an affront not only on the first amendment right of the U.S. constitution but on citizens’ ability to trade freely and without hindrance.

The United States has achieved unparalleled economic success precisely because it operates an open and free society, and it should not run its economy based on fear but instead continue to rely on sound economic policies that have served us well since the turn of the 20th century. The TikTok ban, if it goes into effect, will hurt U.S. creators and small businesses more and damage American business reputation. And then there is the contagion effect — if the ban is implemented and the challenge against its illegality is unsuccessful, then which application, product or service is next?

The United States should be mindful that its preeminent place in the world was because of its open society and belief in innovation not despite it. China has over 1 billion people, a structured governance system and an economy that posts a 10% growth rate year over year. Yet, despite its incredible success and achievements, China is not poised to overtake the United States in preeminence anytime soon, precisely because it is a closed society trying to maintain a semblance of a free economy. In a list of the 10 most capitalized companies in the world, U.S.-owned companies are eight, the other two are Saudi Aramco and PetroChina. All the eight U.S.-owned companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla and Visa) on the list are driven by innovation while the other two non-U.S.-owned companies (Saudi Aramco and PetroChina) are based on hydrocarbon. The difference between a society that thrives on innovation, openness and free trade is starkly clear when compared to closed, resource-dependent societies. 

ByteDance, the owner of TikTok, has promised to approach the courts to persuade the jurists that the ban is unconstitutional. This is a good step, and it further demonstrates the virility of American institutions and its open society credentials.

So instead of banning TikTok, the U.S. government should vigorously enforce trade regulations, continue to welcome innovation wherever it comes from and embrace diverse talents from across the world.

Dr. Abdul Ajia is an associate professor of business administration, lead faculty of the marketing program and MBA program coordinator at the Lincoln University School of Business. 

Disclaimer

The views expressed in this newsletter are solely those of the author and do not represent nor reflect the views of the School of Business or that of the University.

Lincoln University of Missouri, a historically Black, 1890 land-grant, public, comprehensive institution, provides a diverse population access to excellent educational opportunities through teaching, research, and extension services within a nurturing, student-centered environment.