WMT Walmart Inc

By Aaron Tilley 

The Trump administration's campaign to make Chinese-owned video-sharing app TikTok relocate to the U.S. is the latest example of the global fracturing of the internet.

President Trump over the weekend approved in principle a deal that would shift TikTok's headquarters and data to the U.S. Chinese owner ByteDance Ltd. and its investors, for now, remain the majority shareholder, with Oracle Corp. taking a 12.5% stake in the new company, called TikTok Global, and Walmart Inc. owning 7.5%. Oracle will serve as a technology partner to assure the U.S. government that user data is safe, the companies have said.

With the move against TikTok, the U.S., in effect, is following steps a number of other governments have taken to treat their citizens' data as a national-security issue and impose restrictions on how data is stored and shared. Mr. Trump raised concerns that China's government could tap TikTok's data on American users because the app is Chinese-owned. TikTok has said it wouldn't share the information.

Treating user data as a matter of national security is a notion that has dictated many of the policies Beijing has put in place to control the internet in its country for the past decade. China operates what is called the "Great Firewall," limiting the services people in the country can use and the information they receive. Beijing stops people from accessing services run by FacebookInc. and Alphabet Inc.'s Google, instead steering them toward Chinese-owned alternatives such as WeChat and Baidu Inc. that it controls increasingly tightly.

The idea that those data flows need tighter control has spread in recent years, resulting in a number of instances when governments temporarily shut down the internet. Governments have a range of motivations, from squelching internal dissent to protecting their citizens' privacy.

The European Union, which put in place strict conditions on overseas data transfers two decades ago, has broadly tightened its safeguards for its residents' information with its General Data Protection Regulation. India has followed, erecting roadblocks through special requirements for how U.S. tech companies structure their operations and handle data collected from Indian customers. India this summer also banned dozens of Chinese apps, citing national-security concerns, amid a lethal border skirmish with China.

Those measures can come with high costs for tech companies, many based in the U.S. and China, that are built on an internet with few borders. Google pulled out of China a decade ago, losing access to the vast market. Facebook, blocked in China, could face a potential multibillion-dollar fine in Europe over its data practices. Microsoft Corp., which also vied for TikTok, in China limits content on its Bing search engine and LinkedIn business-focus social-networking site.

"U.S. tech companies have far more to lose if this becomes a precedent," said Aaron Levie, chief executive of Redwood City, Calif.-based Box Inc., a fast-growing cloud-computing company. "This creates a Balkanization of the internet and the risk of breaking the power of the internet as one platform."

Some U.S. lawmakers, for some time, have urged the government to retaliate for China's efforts to exert control over the internet. Even before the U.S. took steps to force changes around TikTok's data, U.S. national-security officials ordered another Chinese company to sell gay-dating app Grindr, citing the risk that the personal data it collects could be exploited by Beijing to blackmail individuals with security clearances, according to people familiar with the situation.

The drama around TikTok and its 100 million American users was far higher, though, with President Trump threatening to shut down the app absent a sale. By targeting TikTok as well as WeChat, the ubiquitous-in-China messaging and payments app owned by Tencent Holdings Ltd., Washington has effectively enacted measures to create data-privacy rules, but in a way that can be difficult for companies to handle, said Paul Triolo, head of the global technology policy practice at Eurasia Group, a political-risk consulting firm.

"With these actions, the U.S. is basically making up a rule that no Chinese person or government can have access to the data of a U.S. citizen," Mr. Triolo said. But, he said, "trying to set up a data-protection regime using executive orders is really messy, as this whole thing is turning out to be."

Adam Mosseri, chief executive of Facebook's Instagram, tweeted on Friday that a U.S. ban on TikTok "would be quite bad for Instagram, Facebook, and the internet more broadly."

It isn't just the U.S. and China that eye each other with distrust. The European Union's top court in July struck down one of the main legal mechanisms companies use to store information about EU residents on U.S. servers, arguing that such transfers exposed Europeans to American government surveillance without "actionable rights" to challenge it. The ruling also restricted another legal mechanism companies had used as a backup, leading an EU privacy regulator to start the process of ordering Facebook to cut off EU-U.S. personal-data flows, which the company is appealing. The legal challenge that spurred the July ruling dates to the 2013 leaks of alleged U.S. surveillance practices revealed by former National Security Agency contractor Edward Snowden that showed some U.S. companies were sharing user information with the government.

U.S. concerns about China have increased in recent years, in part driven by the massive hack of records held by the Office of Personnel Management in 2015 that exposed sensitive data on millions of Americans. The U.S. suspected China was behind the attack, which Beijing denied.

The U.S. action on TikTok has enraged the Chinese government. "Without any evidence, they have been abusing national power under the pretext of national security to suppress and coerce non-American companies that have a cutting edge of a particular field," said Wang Wenbin, a spokesman for the Chinese Foreign Ministry, last week.

The Trump administration also said it was moving against TikTok to keep Americans safe from online misinformation, an argument defenders of China's heavy-handed approach to controlling access to online content in defense of the country's policies also put forward.

To help address those concerns, TikTok Global won't just have U.S. investors, but four of its five board members will be American.

That construct could be a useful precedent for other companies as they try to determine what arrangements may be acceptable to Washington, said Winston Wenyan Ma, formerly a managing director at China Investment Corp., the country's sovereign-wealth fund, and now an adjunct professor at New York University's School of Law.

But the TikTok situation that still has many unanswered questions isn't likely to resolve all uncertainties, he said. "In this new world, one case can't solve everything."

--For more WSJ Technology analysis, reviews, advice and headlines, sign up for our weekly newsletter.

Stu Woo contributed to this article.

Write to Aaron Tilley at aaron.tilley@wsj.com

(END) Dow Jones Newswires

September 21, 2020 08:14 ET (12:14 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.