The politics behind the US TikTok ban is not what you think

I may have mentioned this before—and apologies if I have—but as well as being an equities analyst covering media and tech for over 20 years, I am a historian by training. And most recently, as a war historian, I studied the geopolitical tensions between China and the US and its wider consequences. One of my more serious hobbies is also as a bettor on political events, which can be highly lucrative and where 2024 offers plenty of opportunities. I mention all of this because I think, when it comes to the suggested TikTok ban in the US, the real issue may lie elsewhere, and Amazon and Meta could be very much in the firing line.

First, some background. The US House of Representatives last week passed a bill that would force TikTok's owner ByteDance to sell the former's operations in the US or be banned. The bill still has to pass the Senate but, with President Biden saying he will sign the bill if it passes, the chances are that the bill gets passed in some form, especially given it would likely attract support from both political parties. The Chinese authorities have made it clear that they will not (effectively) allow ByteDance to sell TikTok. Given this year is a US presidential and congressional election year, it is easy to see how a ban of TikTok gains political traction.

As with many things in the US, there is the matter of the courts to deal with and it is not hard to see a scenario where at least one of the courts blocks a TikTok ban (this happened recently when Montana tried to become the first US state to ban TikTok). Yet perhaps the most surprising intervention has been from Donald Trump who will be the Republican nominee for the presidency in November who has come out against a ban. Given he tried to get Bytedance to divest TikTok when he was president, this apparent volte-face may seem surprising to say the least.

However, it is worth looking at what Trump said to see why there may be wider consequences. Trump said: "There's a lot of good and there's a lot of bad with TikTok, but the thing I don't like is that without TikTok, you're going to make Facebook bigger, and I consider Facebook to be an enemy of the people, along with a lot of the media. I'm not looking to make Facebook double the size. I think Facebook has been very bad for our country."

This is where some knowledge of the background to US politics comes in useful. One of the most frequent (but less noted) complaints by Trump and the Republican party about the 2020 election is that Mark Zuckerberg's funnelling of significant amounts of cash through charitable foundations to boost the turnout of Democrat voters (the so-called ‘Zuckbucks’) was a major factor in Trump's loss in 2020. And the belief in such circles is that Mark Zuckerberg will do the same in November.

We can argue about the politics of this and maybe even whether Facebook would benefit significantly from a TikTok ban (my view is yes, but maybe not disproportionately so as money flows into different arenas). However, the most important point is that Trump thinks this (even if Republicans in the House voted for a ban) and clearly has animosity towards Facebook. Yet, in an election year, he has to show that he is tough on China. So how would he look to do so in a way that squares the circle?

This is where things could get interesting. Another major hot political issue in the US going into the elections is the rising number of deaths from the drug Fentanyl. Increasingly, in US political circles, there is a growing view that one of the major issues fuelling growth is the so-called ‘de minimis’ customs rules that allow goods under $800 to be imported into the States from China without any customs checks. There are now major calls to slash the limit as a way of significantly reducing the amount of supply.

Yet it has been the ‘de minimis’ rules that have allowed Chinese companies such as Shein and Temu to gain such a market presence in the States. And Facebook has been a major beneficiary of this. In 2023, revenues from customers based in Asia-Pacific (which are likely to be mainly China-based) grew 30% year on year, double the overall growth rate for Facebook. Growth from Chinese advertisers and sellers has also helped to propel Amazon's advertising and ecommerce growth.

My view is that, if Trump wants to show he is tough on China while also damaging Facebook, targeting the ‘de minimis’ rules could be a very effective way of accomplishing two tasks in one (and, in fact three, by proclaiming it as a way to stop the supply of drugs). It is also the sort of arcane rule that tends to attract less attention. In addition, it would also damage Amazon, a plus for Trump given he dislikes its founder Jeff Bezos.

Right now, if you want to look at how things play out, focus on what happens here and not with the TikTok ban.

As usual, this is not investment advice. 

Ian Whittaker is founder and managing director of Liberty Sky Advisors.