(Bloomberg) -- The Trump administration made good on longstanding threats to take action against Chinese internet giants in the U.S. by issuing a ban on WeChat and TikTok from Apple Inc. and Google’s app stores.
For months, President Donald Trump has said he planned to crack down on WeChat, a tool for messaging and money-sharing owned by Shenzhen-based Tencent Holdings Ltd., and TikTok, a music video app owned by Beijing-based ByteDance Ltd., alleging that both apps could let Chinese officials gather data on tens of millions U.S. users and manipulate information shared by Americans.
U.S. officials have already limited the activities of Huawei Technologies Co. and ZTE Corp., saying their telecom gear could give China inroads into critical American networks. The moves against TikTok and WeChat mark an extension of the administration’s anti-China hostilities into the consumer realm, and give Trump a way to project a tough-on-China stance ahead of the Nov. 3 election.
Commerce Secretary Wilbur Ross said Friday that the U.S. would bar WeChat and its parent company from letting users send money to friends, family or businesses. It also banned business relationships with certain third-party technology providers starting Sunday. The move will make it harder to access and use a tool that helps more than 19 million people in the U.S. conduct business and stay in touch with contacts in China.
Read more: WeChat IPhone Downloads Surge in the U.S. Ahead of Trump Ban
The action against TikTok adds urgency to already complicated efforts to comply with another Trump order that forces ByteDance to find a buyer for TikTok’s U.S. operations. ByteDance had reached a deal early in the week to sell a minority stake to Oracle Corp. and other investors, but the accord so far has failed to address all the security requirements outlined by the administration. Walmart Inc. aims to take part in the transaction, and the company’s chief executive officer, Doug McMillon, could end up having a seat on the new company’s board.
China’s Ministry of Commerce condemned the move against WeChat and TikTok, saying in a statement on Saturday that it would take “necessary measures” to protect the legal interests of Chinese firms, without elaborating.
“The U.S. has, with no evidence, employed national powers to ‘hunt’ and suppress the two businesses on groundless bases,” the ministry said. “This has severely interfered with normal business activities and harmed the confidence of global investors in the U.S. investment environment, and damaged a normal international trade order.”
Ross said the government could reverse its decision to block TikTok downloads if ByteDance, Oracle and the Trump administration reach a consensus before Nov. 12. Trump spoke by phone with Oracle Chairman Larry Ellison and Walmart’s McMillon on Friday and told them he was close to making a decision on the proposal, people familiar with the matter said.
The Commerce Department restrictions lay out two, largely separate, timelines for WeChat and TikTok. Restrictions on U.S. app stores for both take effect on Sept. 20, but prohibitions on companies providing services to TikTok won’t kick in until the November deadline. Commerce officials said Friday that they took pains not to disrupt ongoing deal negotiations. And if a deal is reached by Sunday, TikTok could avoid being blocked from the app store, according to one person with knowledge of the matter.
“I can just say our goal is really very straightforward -- protecting the American information and data from ending up in the hands of the Chinese Communist Party,” Secretary of State Mike Pompeo said. “And so while we are reviewing the proposal, trying to evaluate if we can successfully achieve those outcomes, that will be our measure.”
Oracle shares fell less than 1% to $59.75 on Friday in New York.
The action against TikTok and WeChat rattled advocates for freedom of speech and an open internet. Alex Stamos, Facebook Inc.’s former security chief, said the order was “huge strike against the freedoms of U.S. citizens.”
Still, the Commerce order was less severe than some American businesses feared because the ban on WeChat and TikTok is limited to the U.S., left out enforcement mechanisms that would ensnare individual users, and didn’t include restrictions on internet service providers. Extending a ban to China would have dealt a blow to businesses such as Starbucks Corp. and Walmart Inc. that rely on the app for some of their China operations.
“We have engaged in extensive discussions with the U.S. government, and have put forward a comprehensive proposal to address its concerns,” WeChat owner Tencent said. “The restrictions announced today are unfortunate.”
U.S. officials said that American users who have the WeChat app on their phone will still be able to use it to talk with family and friends overseas after the ban goes into effect on Sunday. Americans in China will also be able to continue using WeChat. What is changing is that new users won’t be able to download WeChat in U.S. app stores and existing users will not receive software updates.
Also, because Tencent relies on third-party providers to host and send data, users will experience slowdowns and some dysfunction so a message might time out or there may be a temporary outage. Over time, as users can’t update the app, the WeChat experience will degrade. However, the order doesn’t go so far as to restrict internet service providers or require them to block access to WeChat in the form of the content firewall that’s in place in China.
The Information Technology & Innovation Foundation, a trade group, said the rule puts an “unnecessary burden on U.S. companies,” and that it “puts consumers at risk by cutting them off from software updates including necessary security updates.”
The ban could still affect U.S. companies that allow payment via WeChat and U.S. users who rely on the app to send money to friends and family. While WeChat has a relatively small footprint in the U.S., with only 19 million daily users, it has more than 1 billion users in China and other countries. TikTok has 100 million users in the U.S. and has been downloaded more than 2 billion times globally.
Read more: WeChat Users in U.S. Renew Bid to Block Trump Ban of App
The Commerce restrictions now place the onus on Apple and on Alphabet Inc.’s Google to remove TikTok and WeChat from their U.S. app stores on Sunday.
Apple and Google are ready to comply with the deadline, after administration officials worked in multiple discussions with the companies to ensure that there’s no risk of confusion as the ban is applied, according to a U.S. official.
U.S. officials declined to comment on enforcement penalties, saying that the Commerce Department would work with companies including Google and Apple to protect user data and that it was prepared for any legal challenges that may arise. The U.S. government acknowledges that individuals might find work-arounds to update the apps and that it doesn’t intend to haul a person using WeChat before a federal judge, one official said. Google and Apple didn’t respond to requests for comment.
“We disagree with the decision from the Commerce Department, and are disappointed that it stands to block new app downloads from Sunday,” a TikTok spokesperson said. “In our proposal to the U.S. administration, we’ve already committed to unprecedented levels of additional transparency and accountability well beyond what other apps are willing to do.”
TikTok said it would continue a lawsuit against the U.S. government over Trump’s August executive orders.
Read more: TikTok Lobbyists Took Case Against Ban to Trump Campaign
The Commerce Department held a number of briefings in late August with companies and lobbying groups who scurried to figure out what the potential ban could mean for them and for doing business with Tencent, a major mobile gaming platform and a huge force in social media globally, according to people familiar with the matter. Some American tech firms pressed the Trump administration to let them continue to do business with the Chinese company through their operations in Asia and to allow American citizens to use the apps there.
Industry executives telephoned and wrote a flurry of letters -- including Apple Chief Executive Officer Tim Cook, who discussed the matter with Ross -- but Commerce officials reassured them it would be a narrow ban, according to the officials.
The Treasury Department, ByteDance and Oracle have tentatively agreed to terms for TikTok that would address U.S. national security concerns, Bloomberg reported Thursday. The proposal calls for ByteDance to own most of a ring-fenced TikTok, with Oracle, Walmart and venture capital investors holding a minority of a new company that will pursue an initial public offering in about a year. Trump has the final word and has said he doesn’t want the Chinese parent to retain majority control.
(Adds China ministry’s statement in sixth and seventh paragraphs.)
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