(Bloomberg) -- With the stroke of a pen on Thursday night, Donald Trump made his strategic fight with China hit home for potentially billions of people -- generating confusion, panic and fear around the globe.
The U.S. president’s move to ban the Chinese-owned TikTok and WeChat beginning 45 days from now sent shockwaves through the tech industry and the many American businesses who rely on the apps to sell goods in China. Shares of WeChat’s owner, China’s Tencent (HK:0700) Holdings (OTC:TCEHY) Ltd., fell as much as 10% while the yuan weakened the most since July 22.
The decision also spurred alarm on Chinese social media, with WeChat users in the U.S. posting contact information so friends and family could reach them if the app disappeared. An online forum popular with stock investors asked users if they would give up their iPhones or WeChat if Apple Inc (NASDAQ:AAPL). eliminated the app from its store: They voted to ditch their phones by a margin of 20 to one.
Of all Trump’s shots against China, from imposing tariffs to battling Huawei Technologies Co. to ending Hong Kong’s special trading status, the executive orders against TikTok and WeChat potentially have the widest impact. Beyond the financial blow, they threaten to sever communications ties among the people of the world’s biggest economies in addition to spurring a decoupling of the tech industry that could ripple around the world.
“This move points to a hegemonic war -- the U.S. is trying to suppress China’s rise as a super power,” said Yik Chan Chin, who researches global media and communications policy at the Xi’an Jiaotong-Liverpool University in Suzhou. “All these things will leave a bad impression in China, and the tide of nationalism is already very high right now.”
It’s hard to overstate how ingrained WeChat and Tencent are in China and among its diaspora around the globe: WeChat, which has more than 1 billion users, is relied upon so heavily that many people have never exchanged phone numbers or emails. From Wal-Mart (NYSE:WMT) Inc. and Starbucks Corp (NASDAQ:SBUX). to the NBA and Nike Inc (NYSE:NKE)., nearly every major American consumer brand with business in China is deeply intertwined with Tencent and its network, which includes WeChat and investee JD (NASDAQ:JD).com.
Jason Gui, co-founder of San Francisco-based startup Vue Smart Glasses, said his team has to rely on WeChat to communicate with suppliers in China and a ban would be very “disruptive.” Emails sent to manufacturers in China are often unanswered for days, whereas inquiries through WeChat will get immediate attention, he said.
“When the U.S. imposes these bans, they may not realize how intertwined the relationships between U.S. and China have become,” he said. “Our communication lifeline with China depends on WeChat. It hurts small businesses that have limited resources to figure out how to circumvent these bans.”
‘Hot War’
China officially reacted with caution on Friday, with Foreign Ministry spokesman Wang Wenbin defending the companies and saying the U.S. “is using national security as an excuse and using state power to oppress non-American businesses.” Just a day earlier, Foreign Minister Wang Yi again tried to offer an olive branch by urging the U.S. to “reject decoupling” and stop “any attempt to artificially create a so-called ‘new Cold War.’” Yang Jiechi, a Politburo member, said the door for talks with the U.S. is still open.
Trump’s administration has stepped up its campaign against China in recent weeks, betting that a hard line against Beijing will help him win November’s election despite upsetting millions of younger TikTok users. Secretary of State Michael Pompeo this week urged American companies to bar Chinese applications from their app stores, part of his “Clean Network” guidance designed to prevent authorities in China from accessing personal data of U.S. citizens.
Pompeo’s announcement generated alarm in China. Hu Xijin, the editor of the Communist Party’s Global Times newspaper, suggested a division of the internet that stifles commerce and ties between people would prompt the risk of a “hot war” to rise.
But for many U.S. officials, the bans are simple reciprocity. China walled off its own online sphere years ago, creating an alternate universe where Tencent and Alibaba (NYSE:BABA) Group Holding Ltd. stood in for Facebook Inc (NASDAQ:FB). and Amazon.com Inc (NASDAQ:AMZN).
Yet while President Xi Jinping was an early proponent of cyber-sovereignty, China’s view has changed as its tech champions have become fierce global competitors. By banning certain apps, the U.S. is also looking to deprive China of valuable data that is essential for honing the algorithms that will fuel the modern economy powered by artificial intelligence.
The U.S. also potentially has a lot to lose in terms of soft power. Beyond angering the roughly 5 million Chinese Americans, and hundreds of thousands of Chinese students in America, there’s also the risk that other countries start to ban U.S. technology.
‘Awful for America’
“Pretty much any large country can kick out Facebook and make their own social network if they want to legislate that,” said Matthew Brennan, managing director of marketing consultancy China Channel. “That would be awful for America. But that’s the road we’re going towards with this kind of legislation.”
While the short-term economic impact won’t be large, the decoupling of the tech industries will ultimately lead to slower global growth in the long run, according to Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings. And they could ultimately be more significant than the trade deal between the two countries, which is one of the few areas of cooperation that remain.
“These sorts of measures on technology are as serious if not more serious than tariffs because these are the growth industries of the futures,” Roache said. “Once you erect barriers how do you take them down? That’s the question.”
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