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China Tastes Its Own Medicine

Medicine heals when administered in the right circumstances and amounts; otherwise it can produce responses that are unpleasant, or worse. President Donald Trump is giving China a hefty helping of its own medicine in his latest measures against Beijing’s technology darlings.

Suffice to say that the Chinese are gagging on Trump’s teaspoon.

Last week the president served notice that, in 45 days, he intends to ban transactions between Americans and the parent companies of China’s WeChat and TikTok apps. The scope of the ban was left almost completely undefined, probably deliberately so. Commerce Secretary Wilbur Ross is supposed to provide more details on which transactions are banned at just about the same time the restrictions would take effect.

I would not count on seeing too much detail in those forthcoming “details,” either. Creating broad, unspecified strictures that can be defined and enforced concurrently – after the fact – is a favorite tactic of China’s one-party government. Exhibit A is the new security law that Beijing imposed on Hong Kong, effectively ending the freedoms of expression that were supposedly guaranteed when the territory reverted to China from the United Kingdom.

The Chinese apparently fail to see the irony. ByteDance, TikTok’s parent company, decried Trump’s lack of due process (a concept unknown in China). It promised to sue. Trump had already threatened to ban the app entirely from America (although his power and ability to do so are unclear), before shifting toward an approach that would force ByteDance to sell its U.S. operations to an American company. Microsoft has emerged as the front-runner in what would be a forced sale.

Never one to leave perceived negotiating leverage unused, Trump also declared that the U.S. Treasury should share in any sale proceeds, as a sort of finder’s fee for having forced the sale in the first place. Trump used the term “key money,” a particularly odious practice that is part of the New York real estate scene (from whence his prominence arose).

Hardly anyone in American business, let alone in China, is going to endorse Trump's extortionate approach. But that does not preclude a little schadenfreude in the meantime. The Chinese have made a specialty of squeezing proprietary technology and know-how out of Western businesses for decades, in exchange for access to their country’s labor force and markets. FBI Director Christopher Wray recently called China’s commercial tactics and state-sponsored espionage “one of the largest transfers of wealth in human history.” Trump is completely out of line in demanding a payoff to the Treasury if Microsoft closes a deal for TikTok. But there is some merit in trying to transfer some of that wealth back to its origins.

While the TikTok imbroglio is surely annoying to a Chinese leadership already incensed by increasingly effective American sanctions against telecom maker Huawei, Trump’s executive order against WeChat is the one apt to trigger real alarms in Beijing’s security apparatus.

WeChat is a multifaceted messaging, payment and shopping app. While it is widely used in China, it is unfamiliar to most Americans, other than those with family or business contacts behind the Great Firewall. According to The Wall Street Journal, only about 19 million of the app’s 1.2 billion users are based in the United States. But those ties are useful to Beijing. While Western messaging and content apps are kept out of the country, Chinese censors closely monitor the traffic on WeChat, including traffic outside China’s borders. Propagandists use it to push the Chinese Communist Party line to expatriates and the wider world. It is also useful in China’s “Operation Fox Hunt” efforts to track down, silence or repatriate dissident voices abroad.

Tencent Holdings, WeChat’s parent company, was not as quick to threaten action as ByteDance. In a statement on Friday, the company said it was “reviewing the executive order to get a full understanding.” But it is possible that this was just due to the surprise nature of the order, in contrast to the long-simmering fight between ByteDance and the Trump administration.

Many in the tech community saw Trump’s moves against WeChat and TikTok as a step toward further bifurcating the global internet. I think that’s right – but I would add that it is overdue and does not go far enough. China takes exorbitant advantage of Western openness while it seeks to hermetically seal its own society and population. The contrast has always been distasteful. Now, as the country moves to expand its sphere of influence and to project military, as well as economic, power abroad, that approach is also dangerous. The best way to cure Chinese aggression might be to administer a dose of its own medicine, however unwelcome it may be.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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