- Trump keeps claiming that the TikTok deal includes a $5 billion payment from the companies involved that will be used to fund a new education program.
- But TikTok owner ByteDance said the figure is an estimate of how much TikTok could pay in taxes over years, not a lump sum to be paid to the government.
- If the companies were to pay such a lump-sum fee, it could discourage foreign acquisitions into startups, says financial regulation expert Martin Chorzempa of the Peterson Institute for International Economics.
- But the payment will likely not happen because such a thing, at least the way Trump has been describing it, appears “obviously illegal,” in Chorzempa’s opinion.
- VCs are also concerned. IVP partner Alex Lim tells us that Trump should “think twice” about “extorting” businesses.
- Visit Business Insider’s homepage for more stories.
Trump signaled his approval over the weekend for a deal that has Oracle and Walmart buying 20% of a new TikTok company that operates in the US, but some parts of the agreement remain unclear even to the people involved in it.
A key point of confusion is Trump’s repeated claim that the companies will be paying $5 billion to the US Treasury, which will be used to set up an education fund. It’s a claim he told reporters on Saturday and said to attendees at a campaign rally.
Chinese TikTok owner ByteDance issued a statement Monday saying the $5 billion figure the president keeps tossing around is not a lump sum to be paid to the federal government, but instead how much TikTok may pay in taxes over several years if the deal goes through.
But the way that Trump describes this potential $5 billion, as if he asked the companies to make a payment to the Treasury Department as part of the deal, is problematic, a policy expert and a venture capitalist tells Business Insider.
If companies think they will have to pony up some sort of extra payment to the US government, this could ultimately discourage foreign acquisitions of private US companies, killing one of the major ways startups repay their investors, according to financial regulation expert Martin Chorzempa of the Peterson Institute for International Economics.
And some kind of lump-sum payment probably won’t happen, Chorzempa said, because that idea of a special payment as part of a foreign sale is bizarre and “obviously illegal.”
“I’ve read all the CFIUS legislation,” Chorzempa told Business Insider, referring to the Committee on Foreign Investment in the US. “There’s nothing in there that says they can shake down a company for a side payment.”
Mafia tactics and ‘extorting’ businesses
CFIUS is a federal organization that, among other things, can review business deals involving foreign actors purchasing or investing in US companies or real estate and recommend whether the president should block them.
Trump used a CFIUS review into a ByteDance acquisition to power his executive order that ByteDance divest itself of TikTok operations in the US.
But CFIUS is intended to protect against national security threats. Adding a payment into the process risks throwing open the door to crony capitalism, Chorzempa said.
“For example,” Chorzempa said, “if a company that doesn’t have national security implications is bought by a foreign company because it bid more than a domestic competitor, you don’t want that domestic competitor to be able to raise a stink about it and block the deal so they can buy the company on the cheap, and then kickback that money to whichever politician put up the pressure to block the foreigner.”
Chorzempa calls these “Mafia tactics” and worries that its potential abuse would not be good for the “America’s investment environment.”
Some venture capitalists agree.
“Trump is jeopardizing the United States’ position as the best place in the world to do business, and should think twice about the long-term ramifications of extorting growth businesses, Chinese or otherwise,” IVP partner Alex Lim told Business Insider.
Other high-profile investors may be running out of patience with the long and winding saga of the TikTok sale. Some even publicly reacted with boredom when the US Department of Commerce said last Friday it would ban U.S. users from downloading TikTok. (That was a ban that never happened as more news of the Oracle/Walmart deal came to light.)
“ARM US/China stickiness way less sexy than TikTok but actually far more interesting,’ tweeted Benchmark partner Bill Gurley, referring to Nvidia’s $40 billion planned acquisition of chip maker ARM from Softbank.
“Pretty tired of hearing about TikTok,” tweeted Haystack partner Semil Shah.
“I am just relieved I can’t download it anymore and have an excuse for not using it,” responded Upfront Ventures partner Kara Nortman.