TikTok ban signals full-scale US-China cyberwar

To copy one person’s work is plagiarism, to copy lots of people’s work is research. Never a greater word spoken in jest. The other one I love is that plagiarism is the greatest form of flattery. In that vein, I’d be sorely tempted to cut and paste Gillian Tett’s entire piece in today’s Financial Times on the United States’ House of Representative’s banning of TikTok. I shall desist from that although there will be quite a lot of her thinking in this article. There is nothing in the FT with Ms Tett’s byline that I do not read firstly with interest but secondly with a mind open to knowing that once I’ve read it I will have understood something I never knew needed understanding. In other words, as far as I am concerned, the girl walks on water. She is not without reason chair of the FT’s Editorial Board and its US Editor at Large.

Editor at Large, for those unacquainted with the term, means that she can essentially, without reference, write on anything within her area that catches her imagination. She caught mine ahead of the GFC when she appeared to be more or less the only member of the fourth estate to fully grasp the risks inherent in many of the rinky-dink structured credit products which purported to offer returns well in excess of the embedded risk. That was about the time when Peters’ First Law emerged which is that “Credit risk is like energy; it can be converted but it cannot be destroyed”. In other words, and this of course applies to all financial risks, it doesn’t matter how cleverly the risks are repackaged, if the borrower defaults someone will end up taking the loss. The subtext is that the more parties that have made money in the process of buying, selling and structuring the “product”, the more the end-user will ultimately lose.
 
Tett read Archaeology and Social Anthropology at Cambridge and then went on to take a PhD in the latter. Her PhD thesis was titled “”Ambiguous alliances: marriage and identity in a Muslim village in Soviet Tajikistan”. To our advantage she decided that staying in academic anthropology would be “intellectual suicide” and turned to journalism. I don’t know whether it has anything to do with her academic background, but she has an uncanny ability to separate within markets the financial essentials from flawed human self-justification and therefore to be better able to assess than most of us just how steep and how slippery the slope is upon which we take our trading and investment decisions. Enough fawning. Her piece in today’s FT is titled “What TikTok tells us about the paradox of markets right now”.
 
She begins with the observation that the vote to either ban TikTok or oblige ByteDance, its Chinese owners, to sell the US side of TikTok was carried with an Aye vote of 352-65 – a rare event of Washington cross-party unity. The respective bill will still need assent in the Senate, and it must then stand the scrutiny of the courts and no doubt a string of appeals before it can be enacted. The State of Montana’s attempt to ban the social medium in question – I still cannot get my head around writing that social media “is” and not “are” – was overturned in the courts and I suspect a congressional one might be too. That said, the message is clear: there might be no shooting war being fought between Beijing and Washington, but the cyber war is in full swing.
 
History buffs will be well acquainted with the film recording of Joseph Goebbels’ famous address to the party faithful at the Sportpalast on 18 February, 1943 in which he demanded to know from the audience whether they wanted total war. Well-primed and wound up, the answer from the crowd was a resounding “Yes!”. It is some years ago and long before Vlad the Invader began the shooting war in Ukraine that I had repeatedly expressed the opinion that the Third World War was in full swing, albeit in cyberspace. We are regularly warned of, and businesses more than occasionally experience, Russian ability to hack into more or less any computer system and to hold the owners to ransom. What we are never told about is our own ability to do the same and by equal means bring Russia to a standstill, were we to wish to do so. Let’s face it, the beating heart of information technology remains in Silicon Valley and to misquote Annie Oakley in the musical Annie Get Your Gun, “Anything they can do we can do better. We can do anything better than them”. Let’s face it, there are enough clues – all of course unproven and/or unprovable – pointing to the CIA or some other related agency having created the Dark Web and to someone or something within the Deep State having been the creator of bitcoin.
 
Can we turn off Russia’s and China’s missile’s guidance systems before they’ve even been launched? Can they do the same to us? Does capability exist way beyond what we are seeing in drones versus drones in Ukraine and Russia? If we knew, it would not be a secret, but I would not be surprised. What occurred in the House on Wednesday is, to my mind, the closest we have yet got to the Sportpalast in 1943. Cyberwar is about to go total.
 
I might be displaying a bit of a bias here, but the latest Reaction Podcast in which Iain Martin talks to Tim Marshall is a thoroughly good listen. Other than when it comes to Inside Baseball with Old Chestnut, I’m not a great fan of podcasts. I prefer to read and to retain. But I was never going to miss the opportunity to hear what Tim Marshall has to say on the current state of geopolitics and I’m glad I didn’t. Towards the end, he refers to his own observation that the 30-year “Holiday from history” is over. This dovetails with Nigel Biggar’s comment in the introduction to his book on colonialism that there is an entire generation that has yet to learn that the global peace and harmony in which they have grown up were the exception and not the rule. Funnily enough, US Treasury Secretary Janet Yellen was on the wires yesterday warning that it would be an error to expect interest rates to return to pre-pandemic levels. In other words, the paradigm has shifted, the old mould is broken, and all the king’s horses and all the king’s men will never be able to put it together again. I digress.
 
Gill Tett goes on – the temptation to refer to it as a Tett Offensive is overwhelming – by quoting Angel Ubide of Citadel in that the world currently faces more medium-to-long-term dangers than most investors have ever seen in their lifetimes, be that in domestic politics, geopolitical tensions, climate change or innovation. How can it be, she wonders, that risk asset markets seem to have decided not to worry about current issues and to price themselves on the perceived medium to long-term outlook when nobody can in the vaguest of rational ways have the slightest of clues what that might be. Is AI really the elixir of life or are markets simply whistling in the dark? Or are markets following the Rothschild principle of buying the roar of the cannon?
 
The TikTok vote is exceptional. Its owner ByteDance was just a year ago notionally valued at US$ 360 billion. By now some funds have halved that down to US$ 180 billion and, if the House vote is confirmed in the Senate and makes it across the legal hurdles, that could go lower yet. Although nominally Chinese, 60 per cent of ByteDance stock is held overseas, mainly in America and there principally by the big hedge funds. Congress is in the process of wiping out hundreds of billions of value held by some of the biggest political donors. That might not go down well them and especially not so in an election year. TikTok is a prized example of geopolitical risk in a globalised investment market. When I was still learning my trade as a commercial banker, political risk did not as such apply to superpowers. The risk of mutual nuclear annihilation kept a cap on that. Political risk applied more aptly to banana republics where constitutions were pieces of paper which could be torn up at will and where foreign currency obligations might find themselves liberally and unilaterally placed into default. Anyone with experience of the Club de Paris debt rescheduling will know what I mean.
 
Political risk is now being played out on a much larger stage. Talk of not being able to see the forest for the trees. Tett uses Wednesday’s vote and the markets’ overall modest response as an indicator that they are at best in denial and at worst oblivious of the trend. She then points to the many imponderables that a probable Trump presidency will bring with it and tacitly wonders why such medium-to-long-term detachment still seems to prevail.
 
I know that the guru’s just the guru ‘til the guru gets it wrong. In 2007, and well before it all went catastrophically down the toilet, Tett was sounding the sirens. In her piece today, she raises just about every subject of concern and ends by inferring that the good ship is sailing through a stretch of water teeming with floating mines with nobody on the bridge and the crew below deck busily polishing shoes and ironing the going-out gear in preparation for the party after landing in the next port.        
 
Meanwhile, I have been asked why it is that I spend so much time focussing on US markets and monetary policy and so little on British and European ones? Trying to understand what happens over here without understanding what happens over there is tantamount to trying to learn a language without first learning the grammar. 

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