Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
US and Chinese officials have announced a framework agreement in principle to shift the popular short-video app TikTok to US-controlled ownership, following recent trade talks in Madrid. While the deal aims to address long-standing American national security concerns regarding potential Chinese government access to user data and influence operations, significant questions and hurdles persist, particularly concerning China’s willingness to transfer TikTok’s proprietary recommendation algorithm and whether the agreement will comply with a stringent 2024 US divestment law.
Algorithm Transfer Remains Key Hurdle
Central to any successful deal is the fate of TikTok’s recommendation algorithm, widely considered ByteDance’s most valuable asset and a primary driver of the app’s global popularity. Chinese authorities have historically expressed strong reluctance to allow the export of this technology, a position reinforced by China’s 2020 update to its export control rules, which effectively granted the government oversight over such transfers.
Compliance with US Divestment Law
The proposed agreement faces scrutiny over its compliance with a 2024 US law that mandates ByteDance divest TikTok’s US operations or face a nationwide ban. This legislation was enacted due to fears that the Chinese government could access US user data or leverage the app for influence operations.
Any final agreement will likely require approval from the Republican-controlled Congress. Lawmakers have indicated they plan to closely examine the details of the deal once it is made public to ensure it meets the law’s requirements.
President Trump’s Role and Enforcement
President Trump’s administration first pushed for a sale of TikTok’s US business in 2020. More recently, since the 2024 law came into effect, Trump has extended its enforcement deadline three times, drawing criticism from some Democratic lawmakers who questioned his legal authority to do so.
In February, Attorney General Pam Bondi sent letters to companies like Apple and Google, which provide services or host TikTok, informing them that the Justice Department was relinquishing claims for potential violations of the law. These letters were made public in June.
Ownership Structure and Congressional Demands
A significant question is whether ByteDance will be fully divested from TikTok US, and if China will retain any stake in the new entity. President Trump noted that this decision had not yet been made, pending confirmation following discussions with President Xi.
Senate Intelligence Committee chair Tom Cotton previously stated that American investors acquiring TikTok must sever all ties with China. ByteDance’s current shareholders include prominent American firms such as Susquehanna International Group, General Atlantic, KKR, and Andreessen Horowitz.
Precedent and Legal Backing
The Supreme Court unanimously ruled in January that the 2024 divestment law, passed with strong bipartisan support and signed by former Democratic President Joe Biden, does not violate the US Constitution’s First Amendment. This ruling strengthens the legal foundation for the US government’s demands.
Officials anticipate the final deal will closely resemble a previous agreement outlined in April, which would have spun off TikTok’s US operations into a new US-based firm, majority-owned and operated by US investors. That earlier deal stalled after China indicated it would withhold approval following President Trump’s announcements of steep tariffs on Chinese goods.
Path Forward
While a framework agreement has been reached, the specific details of TikTok’s new ownership structure remain unclear. The path to a finalized deal is fraught with complex technical, political, and regulatory challenges, particularly concerning China’s willingness to part with a key technological asset and the need for the agreement to satisfy demanding US legislative requirements.
