Matt Pottinger, deputy White House national security adviser from 2019 to 2021, chairs the China program at the Foundation for Defense of Democracies. Craig Singleton is a senior fellow at the foundation.
As President Donald Trump rushes to finalize TikTok’s new ownership structure, prospective investors should be careful in assuming the coast is clear. It probably isn’t.
The proposed divestiture deal for the Chinese-owned app, which still needs Beijing’s blessing, rests on an executive order that bends the law it claims to uphold. Even if the deal proceeds, its design leaves investors navigating dual uncertainties: the apparent illegality of continued Chinese control over TikTok’s algorithm and the lingering legal authority of U.S. courts, Congress or a future president to revisit the deal.
In 2024, Congress overwhelmingly passed the Protecting Americans From Foreign Adversary Controlled Applications Act, declaring such applications — notably TikTok — to be national security threats. Rather than banning TikTok from operating in the United States, Congress ordered ByteDance, its Chinese parent, to divest itself of the social media platform. The law defines divestiture strictly, forbidding any continuing “operational relationship” between an app and the foreign adversary firm. That prohibition covers algorithm licensing, software servicing and any role in the app’s governance.
The law’s intent is clear: Ownership changes mean nothing if an app’s source code or decision-making process traces back to Beijing. Last January, the Supreme Court underscored that risk, voting 9-0 to uphold the statute. In his concurring opinion, Justice Neil M. Gorsuch warned that Chinese-developed software carries threats of “malicious code, backdoor vulnerabilities, [and] surreptitious surveillance,” and that divestiture must preclude “cooperation with respect to the operation of a content recommendation algorithm.”
Yet the executive order on TikTok that Trump issued in September appears to fall far short of that imperative. The order claims the divestiture would place “the operation of the algorithms and code, as well as content-moderation decisions” under the control of a new TikTok-U.S. joint venture. But what the order doesn’t clarify is who will own the source code, model weights or signing keys — or whether the restructured venture will simply license the algorithm from ByteDance, in violation of the law. Nor has the administration specified whether ByteDance employees will retain access to the algorithm, in effect leaving China in charge of determining what content TikTok users see and, importantly, what they don’t.
Code isn’t China’s only potential channel of control. Under the divestiture order, ByteDance could continue to own up to 20 percent of the new venture’s shares. However, news reports indicate ByteDance also may retain a board seat — which, like licensing the algorithm, would violate the law. A board seat is hardly symbolic: It provides ByteDance with a perch to shape strategy and operations and access sensitive information. Even limited board representation would grant Beijing insight into the company’s inner workings, content policies and data practices — the very levers China could exploit to shape narratives or exert pressure in a crisis.
Beyond governance, the devil lies in other details. ByteDance has promised the Chinese governmentthat any restructuring will comply with Chinese laws —including those on national security and export control. If ByteDance retains any role in algorithmic or software maintenance, those laws build a specific potential for failure into the new venture: China could suspend or restrict essential tech support, degrading the app’s performance and slashing the app’s value overnight. Beijing has used such leverage before — from rare-earth controls to gaming-license freezes — to pressure or punish governments. TikTok’s algorithm could be wielded the same way, leaving billions in investor capital dependent on Beijing’s goodwill.
Even if the proposed TikTok deal proceeds as planned, the structure might not stand. A future administration could reexamine its terms under existing enforcement authorities or through the Committee on Foreign Investment in the United States (CFIUS), which has reversed approvals before. Between 2016 and 2018, China’s Beijing Kunlun Tech acquired the LGBTQ dating app Grindr with U.S. government approval. In 2019, CFIUS revisited the case and ordered that Grindr be sold to an American consortium after concluding that Chinese ownership exposed sensitive U.S. user data to potential exploitation.
A similar outcome could follow if ByteDance remains involved in TikTok’s operations — exposing investors to the risk of a future forced sale or steep devaluation.
Investors may also inherit rising legal and reputational risks. At least 12 states and the District of Columbia have sued TikTok, alleging it is designed to be addictive to minors and harmful to their mental health. Research has shownTikTok’s “For You” feed can rapidly steer young users toward content promoting self-harm. Antisemitism also spreads wildly on TikTok. One study found hashtags linked to anti-Jewish hate gathered tens of millions of views in months — a scale of algorithmic amplification researchers have not observed to the same degree on other platforms, making TikTok a structural risk investors cannot easily price and one that could invite future litigation.
With Beijing having offered no public clarity on the deal’s terms or timing, Washington’s priority should be oversight, not optimism. Congress should treat China’s foot-dragging as an opportunity to demand a true divestiture, as mandated by law, and to clarify the actual terms of the agreement. Transparency now isn’t just about accountability; it’s about preventing future liability for U.S. firms and shareholders drawn into a dubious joint venture beholden to Beijing. Given China’s record of opacity and leverage, the warning for prospective investors couldn’t be clearer: Buyer, beware.
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