AFTER TRUMP DEMANDS A SHARE OF TIKTOK DEAL, WILL TECH AVOID THE US?
Foreign firms may think twice before approaching US market, says Laurence Dodds in San Francisco
The announcement resembled a dedication to some old-world monarch. “Microsoft fully appreciates the importance of addressing the president’s concerns,” it said. “Microsoft looks forward to continuing dialogue with the United States government, including with the president,” it went on. Then the cherry on top: “Microsoft appreciates the US government’s and president Trump’s personal involvement.”
So read the company’s notice that it would press forward with negotiations to buy TikTok, the Chinese viral video app which came close to a total US ban last weekend. An 11th hour conversation between Trump and
Satya Nadella, Microsoft’s chief executive, revived the chance of a deal.
But if the president’s forceful personal intervention raised eyebrows, that was nothing to his next proposal. “A very substantial portion of that price is going to have to come into the treasury of the United States, because we’re making it possible for this deal to happen,” he told reporters.
“Right now, they don’t have any rights unless we give it to them... it’s a great asset, but it’s not a great asset in the US unless they have the approval of the US.”
Trump’s nakedly transactional tone – as well as his apparent ground assumption that any corporate deal in a free market economy should be subject to his personal veto – constitutes a new level of intervention, theoretically going far beyond cases where national security is at stake.
Matt Levine, a columnist for Bloomberg, summarised his message as “America: we will expropriate the assets of foreign companies if someone pays us a big enough bribe”.
That raises pressing questions for any tech firm hoping to receive investment from or be acquired by foreign companies. Will all future
‘Any major acquisition could be subject to his interference – from China, but also France or Brazil’
overseas deals require them to kiss Trump’s ring as Microsoft did? And if so, given the president’s mercurial negotiating methods, will they be worth bothering with at all?
“It really does hark back to medieval times,” says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, who described Trump’s treatment of
TikTok as highly unusual in American history. As a US treasury official in the Seventies, Hufbauer oversaw the creation of the Committee for Foreign Investment in the US (CFIUS) – a powerful “star chamber” which last year ordered the gay dating app Grindr to be sold off by its Chinese owner, and which would probably have been Trump’s lever for ejecting TikTok from the country.
“These days, taxes paid to the government are a matter of statute,” he says. “The notion that suddenly the president can say to a company ‘well, there’s no statute, but you should pay some ransom to the treasury, because you couldn’t do this unless I had given permission – well, it’s been a long time since we’ve seen that in the world.”
There are plenty of past and potential foreign deals that could fall under such a policy. Epic Games, the maker of Fortnite, is part-owned by the Chinese tech giant Tencent, as is Snapchat. Only two years ago, the electric car maker Tesla was exploring a buyout by the Public Investment Fund of Saudi Arabia.
The same year, CFIUS and Trump blocked an attempt by Singaporebased chipmaker Broadcom to buy US counterpart Qualcomm – even though Broadcom was in the process of relocating to America.
Hufbauer believes that Trump’s move will have a chilling effect on other deals. “As long as he is in office,
any major acquisition could be subject to his interference – obviously from China, but also from France or Brazil or whatever,” he says.
“I think we will have another several months of this, and I would expect [that with] any major, headline type of deal that might be in the offing, the firms would think long and hard about postponing it until next year.”
Greg Becker, chief executive of Silicon Valley Bank, is not so sure. He argues that TikTok was a special case: controversial because social media always is, and forced into the headlines by the president’s tweets about it.
“I think it’s still on the margin,” he says. “Most mergers and acquisitions, and even IPOs, are more domestic – or if they are international, I’d say they are relatively non-controversial... I don’t think you’re going to see much of an impact on capital markets.”
Even so, there may be other effects. Mark Almond, a lecturer in modern history at the University of Oxford and expert on Turkey and Russia, believes
there will be a diplomatic fallout, saying Trump appeared to be asking for pizzo – Italy’s traditional term for Mafia protection payments.
“Imagine if it was a Japanese app or a South Korean app,” he says. “Would it be a good thing for America to say we don’t want Silicon Valley to compete with these products?
“This may be intended as a signal to Beijing, but it may also send a message to others who are at the moment not remotely hostile towards the US... It gives his enemies, and his enemies in the US, grounds to say that it looks like a Mafia shakedown.”
For Erica Frantz, who studies authoritarian regimes at Michigan State University, Trump’s treatment of TikTok presents an additional danger.
“Strongman leaders”, she says, often try to control industries, both to boost their personal wealth and “divvy out perks to key insider supporters”.
She does not believe that this deal fits that pattern, describing it as election-year posturing rather than a genuine threat to democracy. But she does believe that it “ratchets up the potential for corruption”.
As for the business world, Frantz suggests we might soon expect more announcements like Microsoft’s. “Companies often prioritise deference to get the deal that they want in place,” she says. “It is well known that Trump is narcissistic and responds well to his ego being stroked.”