It’s hardly a secret—if China is making major moves, particularly on tech, it will almost certainly provoke a reaction from Washington.
So as Beijing escalates its regulatory crackdown on China’s top-tier internet firms, observers expect the new effort will send shockwaves through Capitol Hill, the White House, and beyond.
“This will be an interesting case study for all sides in D.C.,” said Helen Toner, the director of strategy at Georgetown’s Center for Security and Emerging Technology. “If a government does something like this to a tech sector—in this case, it happens to be in China—what does that mean for those companies, and how well do they bounce back versus is this a death knell for any of the companies being targeted?”
The hits have been coming thick and fast for Chinese internet firms like Alibaba, Tencent, Baidu, and ByteDance. Over the last several weeks, regulators in Beijing and across the country have levied heavy antitrust fines on many tech firms, in the process wiping out nearly $1 trillion in market value.
This week has so far been a dire one for China’s internet sector. On Tuesday, Beijing issued new draft antitrust rules for its tech platforms, and it’s expected to pass tough new digital-privacy regulations by the end of the week. News also broke that the Chinese government has muscled its way onto the board of ByteDance—the parent company of TikTok, a video-sharing app that’s extremely popular in the U.S.
Beijing’s unexpected presence on ByteDance’s board prompted Sen. Marco Rubio to call for the reinstatement of a Trump-era executive order that sought to ban TikTok’s use in the United States. The Biden administration rescinded that order in June, and TikTok and the U.S. government agreed to drop a lawsuit over the ban in July.
Mark Cohen, the director of the Asia IP Project at Berkeley Law School, said he expects more lawmakers to take a tougher line on Chinese tech firms operating in America as Beijing’s crackdown continues. In 2018 Congress passed and Trump signed the Foreign Investment Risk Review Modernization Act. That law, which was written with China in mind, implements tighter controls on investments stemming from foreign adversaries through the Committee on Foreign Investments in the United States.
“This really helps justify what the Trump administration and Congress were doing on revising CFIUS and FIRRMA,” said Cohen. “You can have a window into technology, a window into important assets, without having even a significant minority control of an enterprise.”
“I think if there’s a clear Washington reaction, the first one will be, ‘Gee, we were right about FIRRMA, we were right about CFIUS, and we really have to look very carefully at vulnerabilities posed by creative investment structures in U.S. companies,’” Cohen said.
Toner agreed. “The idea of the Chinese Communist Party secretly having a stake in some of these companies is one that folks in Washington are very likely to be concerned about,” she said.
The U.S. response to China’s tightening controls on its tech firms will depend in part on what, exactly, Beijing is trying to achieve. And no one—at least, no one outside of China—is quite sure what they have in mind.
Robert Daly, the director of the Wilson Center’s Kissinger Institute on China and the United States, said in an email that China’s clampdown is likely driven by a confluence of factors. Those include legitimate concerns over data flows and big tech’s power, a perceived need to preserve the Communist Party’s primacy over certain corporate titans, and a desire to move the Chinese people away from the “games, gizmos, and distractions” of the internet economy.
But contrary to the assertion of some commentators, Daly said Beijing won’t pursue these goals at the expense of undercutting their economic strength vis-à-vis the U.S.
“If Beijing believes that tighter regulation of its tech giants will damage its competitiveness with the United States, it will back off,” Daly said.
China’s big internet companies are among the largest and most competitive in the world, behind only Facebook, Google, Amazon, and other U.S. tech giants. Robert Atkinson, the president of the Information Technology and Innovation Foundation, said Beijing is likely hesitant to kill those golden geese. But, he added, the tightening restrictions will inevitably give American firms an advantage.
“[Chinese firms] are battling the U.S. companies in certain southeast Asian countries, certain Latin American countries, and the like,” said Atkinson. “It is in the U.S. national interest for our companies—not just in internet, but in most sectors—to beat the Chinese companies.”
“Now there’s an opening, there’s a weakness here,” said Atkinson. “Let’s take advantage of that and make the Chinese pay for their mistakes.”
Atkinson said that’ll only happen if U.S. regulators abandon or scale back their own antitrust efforts against large U.S. tech firms. But Toner believes China’s ongoing efforts to rein in their tech giants may undercut Silicon Valley’s argument against the escalating regulatory push at home.
“These kind of developments will really take the punch out of some of the arguments that have been used against various tech-sector regulations that have been discussed in Washington,” said Toner.
Facebook chief executive Mark Zuckerberg has in the past warned against regulating U.S. internet firms too harshly, arguing it would give lightly regulated Chinese firms a competitive advantage. “I think it would be very difficult for him to make that argument this week,” said Toner.
Beijing’s crackdown on its tech industry may most acutely impact Washington’s ongoing push to break up big tech firms like Facebook and Google. Lawmakers and regulators on both sides will almost certainly be watching to see whether the Chinese government’s slash-and-burn approach will undercut crucial corporate investments in artificial intelligence and other emerging technologies—or, conversely, whether China’s tech sector emerges from the chaos relatively unscathed.
“It’ll be interesting fodder for future debates in the U.S., as we see how severely this has or has not hurt these companies,” Toner said.