TikTok is a step nearer to a U.S. ban, just as the video-sharing app’s social commerce bet has started to payoff. A U.S. federal appeals court on Friday upheld a law requiring Chinese-based ByteDance to divest its popular short video app TikTok to the U.S. government-approved buyer by January 19 or face a ban.
The panel of three judges in the U.S. Court of Appeals for the District of Columbia Circuit rejected TikTok’s argument that the law was unconstitutional. The ruling could spell the end for the app in a market that has become a crucial sales channel for TikTok.
Impending TikTok ban in U.S.
The court decision raises the stakes of TikTok’s social commerce ambitions in the U.S. It could all come crashing down if the app is banned in January. As a result, brands, sellers and agencies would lose a vital source of revenue.
The decision is a major win for the Justice Department and opponents of the Chinese-owned app and a devastating blow to TikTok parent ByteDance. It significantly raises the prospects of an unprecedented ban in just six weeks on a social media app used by 170 million Americans.
The Justice Department says under Chinese ownership, TikTok poses a threat because of its access to vast personal data of Americans, asserting China can covertly manipulate information that Americans consume via TikTok.
Attorney General Merrick Garland called the decision “an important step in blocking the Chinese government from weaponizing TikTok.”
TikTok to appeal ruling for forced sale
The ruling comes amid growing trade tensions between the world’s two biggest economies.
While today’s news is disappointing, rest assured we will continue the fight to protect free speech on our platform,” TikTok CEO Shou Zi Chew said in an email to staff.
TikTok plans to appeal the decision to the Supreme Court.
The Chinese Embassy in Washington called the law “a blatant act of commercial robbery” and warned the United States “must handle this case in a prudent manner to avoid harming the mutual trust between the two countries and the development of bilateral relations.
Effect of ban on TikTok shopping
The decision comes just as sales through TikTok’s e-commerce platform Shop have seen meteoric growth in the 15 months since it launched in the U.S. TikTok Shop tripled its U.S. shopping sales to more than $100 million on Black Friday, according to the company. TikTok Shop also saw a 165% annual increase in shoppers, the company said.
Live shopping, which the video-sharing app has been pushing this holiday season, was a major focus. Despite its relative newness, market research firm EcommerceDB expects TikTok Shop’s gross merchandise volume to swell to $50 billion in 2024, more than double from last year. It’s a small piece of the e-commerce shopping pie compared to the likes of Amazon, which is expected to see $757 billion in GMV in 2024. But the data shows TikTok Shop is picking up steam.
There’s been plenty of skepticism around the potential for social commerce and live shopping in the U.S.
Could a possible TikTok ban threaten social commerce dominance?
If banned, TikTok advertisers would seek new social media venues to buy ads. Already, the shares of Meta Platforms, which competes against TikTok in online ads, hit an intraday record high following the ruling and closed up 2.4%. Google parent Alphabet, whose YouTube video platform also competes with TikTok, closed up 1.25%.
ByteDance, was valued at $268 billion in December 2023 when it offered to buy back around $5 billion worth of shares from investor.
The law prohibits app stores like Apple and Alphabet’s Google from offering TikTok and bars internet hosting services from supporting TikTok unless ByteDance divests TikTok by the deadline.
U.S. appeals court Judge Sri Srinivasan acknowledged the decision will have major impacts as there are around 170 million Americans who use TikTok. He added that this is in part why divesting it from China’s control is essential to protect U.S. security.
