Donald Trump wants US to get a cut of any TikTok deal, but no one knows how that'd work

The president is promising to orchestrate the kind of pay-to-play bounty that the US prohibits companies from making to other governments

The New York Times August 09, 2020 12:01:55 IST
Donald Trump wants US to get a cut of any TikTok deal, but no one knows how that'd work

Washington: If he were still running casinos in rough-and-tumble Atlantic City, New Jersey, President Donald Trump’s demand about Microsoft’s possible purchase of TikTok might be translated this way: I want a piece of the action.

In exchange for blessing Microsoft’s acquisition of the Chinese-owned social media platform, Trump has said the US treasury should receive a “very big proportion” of the sale price.

If he follows through, it would signal an effort to carve out an entirely new role for the federal government in exerting its powers to approve or thwart business deals with national security considerations.

In essence, the president is promising to orchestrate the kind of pay-to-play bounty that the United States prohibits companies from making to governments of other countries under the Foreign Corrupt Practices Act.

And he is playing a role that is common among the autocratic leaders on whom he has often heaped praise: using the sheer power of his office to influence the private marketplace without clear legal or regulatory authority.

“It’s protection money. It’s not what the government of the United States should do,” said Avery Gardiner, the general counsel for the Center for Democracy & Technology, a nonprofit advocacy organisation focused on digital rights, privacy and an open internet.

“It’s scary to think that it might apply in some parts of business and not in others,” she added. “It becomes a special tax if your business is involved in social media, but you can only do the deal if you pay the protection money. That’s even worse.”

Numerous legal experts said they knew of no provision in US law that would allow the president, or anyone else in the government, to force two private companies to make a substantial payment to consummate a merger or an acquisition.

And even the president’s own top economic adviser played down the idea, conceding that it was not well thought out.

“I don’t know if that’s a key stipulation,” Larry Kudlow, the director of the National Economic Council, told reporters this week. “It may be that the president was thinking, because the treasury has had to do so much work on this, there are a lot of options here. I’m not sure it’s a specific concept that will be followed through.”

But for Trump — who has repeated his demand no fewer than four times in the last 10 days — the instinct fits a long-standing pattern of behaviour that has always challenged his party’s usual free-market philosophy.

The president berates or inflates companies with his Twitter feed, seeking to interfere in the free market. He wields his office like an economic cudgel, threatening tariffs against friend and foe alike and demanding that government contracts be renegotiated. And he frequently muses aloud about a presidency in which he can run the world as he ran his company — without the guardrails established by law, regulation, customs or norms.

“Very simple,” he explained to reporters this week about his approach to a TikTok deal. “I mean, we have all the cards because, without us, you can’t come into the United States. It’s like if you’re a landlord, and you have a tenant. The tenant’s business needs a rent; it needs a lease. And so what I said to them is, ‘Whatever the price is, a very big proportion of that price would have to go to the Treasury of the United States.’”

Trump added, “And they understood that. And actually, they agreed with me. I mean, I think they agreed with me very much.”

A spokesman for Microsoft declined to comment. But in a statement issued last Sunday, the company offered a vague promise that it was committed to “providing proper economic benefits to the United States, including the United States Treasury.”

If Microsoft ends up buying TikTok or a part of its business, the combined company would be subject to existing laws that could increase local and federal tax revenue. The company could promise to bring additional jobs to the United States, which could increase economic activity and generate revenue. And there are small filing fees associated with the national security review that the two companies are undergoing.

Legal experts said there is also no law that explicitly prohibits companies from voluntarily offering a gift to the government, as long as it is not made under duress and the gift does not benefit any particular individual government officials.

But they also warn that extracting a large cash payment as a condition of a TikTok sale would undermine the integrity of a legal process that operates with specific, objective standards. That could set a precedent that deters similar deals in the future by injecting uncertainty into the prospect of any big business deal.

That appears to be exactly what Trump wants.

The federal government has a role to play in a potential arrangement between Microsoft and TikTok because of concerns that the Chinese-owned video app could pose a national security threat by funneling personal information about US citizens to the Chinese government.

In an executive order issued late Thursday, Trump banned the app from operating in the United States but said the ban would take effect in 45 days, apparently to give Microsoft time to explore a possible purchase.

“This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage,” Trump said in the order.

Those concerns have also prompted a review by a special government panel that examines national security threats, the Committee on Foreign Investment in the United States, also known as CFIUS.

In the past, the committee has required companies to take tangible steps to reduce the risk that their products or services could threaten the security of the United States. But experts in the process said that there are no provisions in the law that would justify Trump demanding a cash payment to mitigate security issues.

The review process has no mechanism, they said, for “side payments,” however labeled, as a condition of a sale to Microsoft. Several said the mere proposal could deter foreign investment in the United States.

“It would be deleterious to the process,” said Aimen Mir, a former deputy assistant secretary for investment security at the Treasury Department. “One of the strengths of CFIUS, in the eyes of investors and companies from allied nations that are sometimes the subject of CFIUS orders or mitigation agreements, is clarity that CFIUS focuses on national security and national security alone.”

It is unclear how Trump got the idea of a cash payment in the first place.

Some of the president’s advisers had objected to the potential sale of TikTok to a US company like Microsoft in part because such a deal would end up funneling U.S. dollars to China. Why should China get paid for posing a security threat to the United States?

To Trump, ever the negotiator, there appeared to be a simple solution to that problem: The United States would demand its cut, too.

”The president does use the power of the federal government against individual companies in ways that are different than ever before,” Gardiner said. “It’s very anti-democratic.”

Michael D Shear, Alan Rappeport and Ana Swanson c.2020 The New York Times Company

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