Opinion: Foreign Investment Screening
In the case “TikTok and National Security: Investment in an Age of Data Sovereignty,” one major dilemma to be considered is how much screening should be done before foreign entities can invest in American companies. While the article does provide evidence for a spectrum of answers to this question, one response clearly seems to be the most valid. Having high levels of aggressive screening for potential international investments is essential for America and her future. Our analysis of the protection of national security that this gives us and the minimal damage that it will cause will make it exceedingly clear that the best course of action for the U.S. is to aggressively screen foreign investment and—when it is called for—be willing to block these deals that pose great risk.
The two main options for the US that this case proposes are, first, the one I have recommended—with intense scrutiny of foreign investment in order to protect national security—and, alternatively, a path of relaxed scrutiny with a goal of bolstering economic growth. Seeing how many risks can be averted with a strict foreign investment policy and how inflated the economic concerns are for the other side helps to reveal that the first path, the one I champion, is superior and will have better results for the US.
The main argument in favor of having the US aggressively screen proposed foreign investments is that major security threats to our nation can be diminished. One of the main focuses on this article is TikTok, a company run by ByteDance, a Chinese company. The nationality of this company is so important because, as argued in this case, the Chinese government has very suspect laws in regards to data privacy. As explained by Friedman and his co-authors, a Chinese law passed in July 2015 regarding national security “obligated firms doing business in China to cooperate with the state when requested to do so on national security grounds.” (4) Due to the vague nature of this law, with something simply needing to regard “national security,” it seems as if the CCP can force any business in their nation to work with them for any reason. Because, no matter reality or the true reason, the CCP will say that it is for “national security” and the business will be obligated to help. With this law, it seems that foreign businesses—even if not officially connected to the Chinese government—may pose a threat to US national security if China does too.
Going even further, however, it seems that few Chinese companies will be able to truly say that they are not influenced by the Chinese government because of another law mentioned in this article. An April 2016 law in China required businesses and other NGOs “to partner with a Chinese counterpart and to register with and accept oversight by the Ministry for Public Security.” (4) Due to this new “oversight” from a governmental ministry, it seems nearly impossible for some company to be able to claim total independence from the CCP. Through this additional connection to the Chinese Government, companies being able to act against the wishes of the Chinese Communist Party seems unlikely.
Other measures in China contribute to the U.S.’s suspicion of Chinese businesses. As mentioned in the article, China’s “Cybersecurity Law…required network operators to assist state organizations on matters of national security.” (4) This, along with a very similar National Intelligence Law passed the same year, is the crux for much of the national security risk that Americans now have regarding China. The fear is that companies are “obligated to share information…with China’s intelligence agencies.” (4) With companies being forced to directly share our data with the CCP, the U.S. is rightfully concerned about their data security. Information that may be sensitive and private can, under these Chinese laws, be directly delivered to the CCP. One expert, Scott Kennedy, is quoted in the case as saying that the U.S. investigated a potential acquisition of a U.S. company “because Ant Financial is from China, a country that has little credibility when it comes to protecting personal data.” (9) Because of the fear that China won’t protect data—a fear that is rational due the multitude of laws passed in China which force companies to give data when requested—the U.S. government is making the right call in having lots of scrutiny in regards to foreign investments.
One concrete example of China misusing data happened with TikTok. As the case explains, “On July 7, 2020, the U.S. Federal Trade Commission and U.S. Justice Department opened an investigation into whether TikTok violated privacy agreements regarding data from users younger than 13.” (10) This investigation had legitimate claims that TikTok was inappropriately collecting the data of children. This example shows how the fears that America has that China is willing to violate our data security are valid. With the laws mentioned and this concrete example, it shows how China poses a major threat to our national security.
But it is not only China that makes us need stricter screening of foreign investments. Russia forces internet companies “to save all user data…and to provide it to the state upon request.” (6) In a manner incredibly similar to China, Russian companies having data regarding Americans pose a serious national security threat, as that data could easily be given to our advisory Russia. So not just with China, but with other nations of the world as well, the U.S. is facing serious risks to our national security.
Now that we clearly understand the national security and data risks that America faces in the world due to their foreign enemies, we will see how strict scrutiny of foreign investment is a smart way to solve this problem. The Committee on Foreign Investment in the United States (CFIUS) has “the statutory authority to review foreign investments in U.S. businesses for potential national security risks.” (7) With their explicit goal of protecting national security, the CFIUS is an essential avenue to protect American interests. During their screening processes for when foreign companies want to invest in America, the CFIUS can detect when a company poses a major threat to national security. As the article explains, “when the committee identified a national security risk that could not be mitigated, it would recommend to the U.S. President that the investment be prohibited.” (8) By having the mission to detect when security is at risk due to foreign investment, the CFIUS is key in blocking these acquisitions and stopping breaches of data before they happen. Knowing that data security is such a major issue and having the ability to limit it with the CFIUS, it is clear how intense screening of foreign investment and potential blocks on deals are necessary and beneficial to help achieve American goals and safety.
Considering the alternative option this case discusses, to allow open foreign investment to help the economy grow, we can see how this is the inferior option. One concern that this side voices is that having scrutiny in regards to foreign investment (and blocking potential deals) could have “deleterious effects…on U.S. business interests and economic growth.” (8) I find this argument to not be that strong. Just simply because this one transaction is blocked for a U.S. company, it does not mean that all transactions would be blocked. If a different foreign company or an American company attempted to enact this transaction, it’s likely that it could pass high scrutiny. The fear that intense screening would harm the U.S. economy places too much emphasis on how important any single deal is and ignores how there are other companies that might want to participate in this deal. Another weak argument that this side might make is that the fears about data security are overblown. One piece of evidence they would use is that TikTok has claimed that “it never shared user data with the PRC or censored content at the request of the Chinese government.” (11) This argument falls flat on two fronts. One, it is possible that TikTok representatives are not being truthful here—they are lying to make their company look better. While, granted, I would say it’s not likely that they are lying here, it’s not a possibility to ignore. Additionally, just because they haven’t given the CCP anything yet, that doesn’t mean they won’t in the future. Different ownership and leadership or a different Chinese government might force TikTok to hand over the data due to China’s aforementioned laws. Even if this statement is true, it ignores the risk that TikTok poses to our national security in the future.
In our analysis, we have seen why my suggestion after reading this case is for the U.S. to engage in intense screening for proposed foreign investments. The threats to the national security and data privacy of American citizens are legitimate and the economic concerns are limited. Going forward with these strict policies of criticality looking at foreign investment can lead to major protections of our national security in the future.
"TikTok on iPhone" by Nordskov Media is marked with CC0 1.0.