TikTok, U.S. Steel, and navigating our geopolitical challenge

Close markets to assertive authoritarians but not to democratic capitalist allies.

TikTok and U.S. Steel provide two useful points to discuss navigating trade and industrial policy through the geopolitical challenge of our time.

That challenge, to paraphrase and somewhat amend President Biden’s formulation, is managing the conflict between assertive authoritarianism and democratic capitalism. That’s the rubric through which our relations – commercial, diplomatic, and military – with other countries should be viewed and guided.

The House recently passed a bill overwhelmingly, 352-65, to require TikTok to be divested from its ownership by the Chinese firm ByteDance in order to continue operating in the United States. Biden says he will sign the bill if it gets to him.

Arizona’s delegation split on the bill along unusual partisan and ideological lines. Republicans Juan Ciscomani, Eli Crane, and Debbie Lesko were joined by Democrat Greg Stanton in voting for the measure. Republicans Andy Biggs and David Schweikert were joined by Democrat Ruben Gallego in opposing it. Republican Paul Gosar and Democrat Raul Grijalva missed the vote.

I think it's a prudent step. Why begins with understanding that there is no such thing as what we regard as a private-sector business in Xi’s China. Under Xi, the influence of the Communist Party has been expanded in all businesses, especially those that have important overseas operations.

This is not the kind of arm's-length regulatory oversight that is a feature of today’s democratic capitalism. There are party committees embedded in these companies with growing authority over their operations. 

TikTok vacuums volumes of data from its users. It has huge propaganda potential, as exhibited by the company’s call on its users to lobby Congress against the divestiture bill, a move that apparently backfired since it illustrated the company’s potentially disproportionate and malign influence. 

ByteDance claims that it has never been asked by the Chinese government for access to its U.S. data and has taken steps to ring-fence data from U.S. users. However, it defies belief and experience that the Chinese government has, or would maintain, a completely hands-off relationship with a company that has over 100 million U.S. users.  

China is the power player in the assertive authoritarian alliance. The U.S. should be attempting to insulate our domestic economy from its involvement and influence to the maximum extent possible. I respect the views of skeptics who question the effectiveness and cost of such an attempt. However, given the overarching geopolitical challenge, we should do what we can at a reasonable cost. 

Requiring the divestiture of TikTok comes at little cost. American social media apps are already generally banned in China. And it would defuse a potentially significant propaganda tool. 

U.S. Steel has agreed to be bought by the Japanese company Nippon Steel. Nippon Steel plans to invest in modernizing U.S. Steel’s plants.

Last week, Biden said he was opposed to the sale. In a statement, he said: “U.S. Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated.”

This is widely seen as a pander to the steelworkers union, which opposes the sale even though Nippon Steel has said that it would honor U.S. Steel’s collective bargaining agreements. The union is trying to force U.S. Steel to sell to another U.S. company with a unionized workforce, even though the offer from that company was considerably less than that of Nippon Steel.

Biden is putting his political considerations ahead of his duties as president. The Nippon Steel purchase requires approval from regulatory agencies that report to him. Biden announcing his opposition at this point taints and politicizes the regulatory reviews.

The real damage is far greater than that. Japan is a democratic capitalist country and a very strategically placed ally in the geopolitical challenge of managing the conflict with assertive authoritarianism. It has been taking big strides in assuming a larger role in that effort. 

Previously, Treasury Secretary Janet Yellen offered a useful construct of friend-shoring the U.S. supply chain, reducing reliance on authoritarian providers such as China and increasing reliance on democracies with market economies. Telling Japan that its companies are unsuitable to buy American companies even when offering the higher price undermines the geopolitical relationships managing the overarching challenge requires. Hard to friend-shore when you are crapping on your friends.

Both Biden and Donald Trump are promising a mercantilism that it is impossible for a modern democratic capitalist country to bring off. Both are saying that the United States will produce what it consumes domestically and also increase exports to other countries.

Mercantilism requires either an imperialistic control of other markets or an insuperable production advantage. In the modern era, China could pursue a mercantilist policy because its labor costs for the production of consumer goods was so much lower than in developed countries. That string is running out. 

The United States has neither captive foreign markets nor insuperable production advantages. Other countries, including our allies in the geopolitical challenge, aren’t going to play the sap to American mercantilism. Protectionism begets protectionism. Which weakens the sinews of alliances among democratic capitalist countries to manage conflict with assertive authoritarianism. 

TikTok and U.S. Steel point toward the way to navigate managing the geopolitical challenge. Close our markets to assertive authoritarians to the extent possible. Keep open the full spectrum of relationships – commercial, diplomatic, and military – with other democratic capitalist countries.

It’s foolhardy to believe that we can close off our markets to other democratic capitalist countries while maintaining robust diplomatic and military relationships to manage the geopolitical challenge. Closing off our markets to geopolitical allies isn’t in our economic interests in any event.      

Reach Robb at robtrobb@gmail.com.