It is hard to think of two businesses as different as TikTok and US Steel. The later is more than a century old (which I am given to believe counts as a longtime in the United States), employs more than 20,000 workers and is just about as ‘old economy’ as on one can imagine, producing a product which has been central to industrial economies and the industrialization process since the dawn of modern economic history. The other launched less than decade ago and is primarily concerned with allowing users to create and share, often bewildering, short-form videos. And yet, in an election year, the ownership of both has come under political scrutiny.
Earlier this month, the US House of Representatives passed a bill that would, in effect, ban TikTok in the US unless its current Chinese owner sells the firm. Just days later President Biden once again weighed in against a proposed takeover of US Steel by Japan’s Nippon Steel.
Whilst economists tend to support open global markets and to be more relaxed about foreign ownership than politicians accountable to the electorate, there is plenty of room for nuance. The cases of both TikTok and US Steel have been considered by the Clark Center’s US Economic Experts panel over the last year with rather different results.
When it comes to the proposed takeover of US Steel there was a strong consensus that a Japanese takeover would not lead to a substantial fall in the US steel industry and that an acquisition by Nippon Steel would do no harm to the wider US economy.
By contrast, a survey last May was somewhat more relaxed on the potential impact of a national ban on TikTok. Weighted by confidence a majority of respondents disagreed that such a ban would have a measurable negative impact on US innovation.
Of course one has to be careful in comparing surveys asking different questions about different scenarios in different industries but the broader point is that the Clark Center surveys are in tune with wider expert opinion.
Leaving aside, for a moment, the raw economics, the case for a ban on Chinese ownership of TikTok rests on an at least plausible case that it represents a national security risk to the United States. The app could, in theory, be used to spy on its estimated 170 million American users or, at least potentially, to spread misinformation and propaganda. Whilst the first fear could be allayed by a ban on all tech and social media companies – rather than just TikTok or other Chinese owned ones – from transferring data to foreign countries, the second is trickier to manage. Either way, the economic issues at stake are distinctly secondary to the wider national security policy concerns. So the fact that the experts do not see much in the way of immediate economic downsides is simply an unexpected bonus.
But the question of a takeover of US steel is another beast entirely. It is, for a start, much harder to paint the issue as about national security. Japan is a long-standing US ally and US Steel is not a direct supplier to the US military in any case. More importantly the production of steel has none of the potential sensitivities and vulnerabilities of a social media platform with tens of millions of users.
The proposed takeover is primarily an economic issue and in the view of economists it would be more likely to help than harm the US economy.
It is hard to avoid the conclusion that the President’s opposition to a Nippon Steel takeover is rooted more in politics than anything else. Talk of “strong American steel companies powered by American Steel workers” feels more like courting the endorsement of the United Steelworkers union ahead of November’s elections than anything else.
There is a danger here in American policy. Two years ago Treasury Secretary Janet Yellen announced that the administration wanted to see more of what it terms “friend-shoring” or the movement of critical supply chains away from China, a geopolitical rival, and towards allied nations. As Secretary Yellen put it “We cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage”.
But if friend-shoring is to succeed, it has to work both ways. Complaining about takeovers involving firms from a close ally risks undermining the whole project. Imposing economic restrictions to uphold national security is one thing, but pandering to domestic interest groups is quite another.
With the Presidential election still more than eight months away this is unlikely to be the last time that perceived domestic political imperatives clash with the broader economic good.
