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US vs CHINA: Executive Disorders?–Futurum Tech Podcast Episode 045
by Olivier Blanchard | May 17, 2019

On this episode of  FTP, the Futurum Tech Podcast, we take a look at the impact of the growing conflict between the United States and China involving trade, intellectual property, cybersecurity and now presidential executive orders. Plus, we’ll take a look at Cisco’s earnings, how Google is using a new Translatotron to transmogrify translation, the latest in US cybersecurity initiatives, major networks and what they’re doing with your personal data. And then finally, HPE is acquiring Cray, the coolest supercomputer company ever. And that and more on this episode of  FTP.

Our Main Dive

What is the real impact of the growing conflict between the United States and China involving trade, intellectual property, cyber-security, and now, presidential executive orders?

Our Fast Five

We dig into the week’s interesting and noteworthy news:

Tech Bites

The NYPD, for blurring the lines of facial recognition with Woody Harrelson: What could possibly go wrong?

Crystal Ball: Future-um Predictions and Guesses

Will the US actually outright ban companies like Huawei and ZTE, or will it soften its position in order to get the “great deal” it seeks with China?

Transcript:  

Olivier Blanchard: Welcome to this week’s edition of FTP, the Futurum Tech Podcast. I’m Olivia Blanchard, Senior Analyst with Futurum Research. And joining me today are Dan Newman and Fred McClimans. How are you guys doing today?

Fred McClimans: Were doing great.

Daniel Newman: I don’t know about we, but I’m okay.

Olivier Blanchard: At least for a few days, right.

Fred McClimans: Dan, you and I were talking earlier, and you are miraculously healed. You are feeling better today, so I just kind of-

Daniel Newman: I’m jet lagged. I’m fever-ridden. I spent three days, I sweated it out on an airplane. That’s the exact reason I don’t recommend people ever lick the trays on an airplane, even if you are doing it to experimentally see if it can help you build immunity. It turns out it just gets you a weird fever that you can wander around Nice, somewhat distraught, exhausted and then you come home and you don’t know where you are for three days. But otherwise, I’m great. Thanks for asking. That’s probably all you really wanted to hear anyway.

Olivier Blanchard: Yeah, I’ve done the same thing where I thought I was going to get quarantined when I got back to the US, because I was so feverish and looking like death warmed over. So, I know how you feel. That’s not good. But back to the topic at hand, we’re going to start today’s show with a discussion about the impact of trade and national security sanctions on Chinese tech companies. Then we’ll share some of our favorite tech news stories of the week in our Fast Five Segments, followed by Tech Bites, which we highlight as always, one of the biggest tech related fails of the week. And we will end the show, as always, with our crystal ball.

Before we begin though, it goes without saying that this show is intended for informational purposes only, and no advice or insights provided here today should be taken as investment advice. So, our main topic of the day, US versus China, trade and national security leads into tech, as of course it was bound to, especially with the beginning of the commercialization of 5G and the rivalry between US companies and Chinese companies.

So gentlemen, I will actually start with Fred. I’ll hand it to you first, and then we’ll go to Dan, and then I’ll add my two cents. Try to frame what this, not abstract war, but this trade/national security war between the US and China, how did it change this week? What new developments elevate it to a new level of crazy?

Fred McClimans: Yeah. I think crazy is the way to describe it, but crazy in a very serious way with certainly a lot of impact potential, negatively for just about everybody across the board. So as we know, the Unites States and China have been going back and forth over a number of different issues regarding the theft of intellectual property, potential spying on the US by the Chinese government, potentially through Huawei and ZTE technologies and so forth, as well as having this ongoing battle over trade deficits. The US wants China to buy just as much from the US as the US buys from China, which just simply never is even remotely going to happen. It just is not possible.

But this week, after the United States walked away from the trade bargaining table in what appeared to be an attempt to get better terms out of China, China kind of slapped back with some tariffs of their own after the US slapped tariffs. And then, things got hot and nasty when the United States did two things. The first was they issued a document … I was almost going to call it a royal proclamation here … but Trump issued an executive order on securing the information and communications technology and services supply chain. That is a mouthful.

It is essentially an executive order under the auspices of protecting the supply chain, which we all think is a great thing to do. That essentially gives the government the ability to, in the name of national security, say that any particular company or any particular technology is so important to the United States that certain companies or potentially countries will not be allowed to do business in the United States.

The challenge with this here is that it’s incredibly broad. It does not mention China. It does not mention Huawei. Which by the way this week, separately from this, the Commerce Department’s Bureau of Industry and Security added Huawei to its Entity List, which is sort of the death panel list of companies that the US discourages companies from doing business with. But in this particular case here, this executive order, it’s structured in such a way that by not naming what technology areas are critical, and by not naming the companies or countries that are potentially putting that critical infrastructure at risk, it turns out that just about any company or any technology can be added and included later. Which brings up the potential for this to really become a political tool or a trade bargaining chip of sorts.

So, it’s almost impossible to link the two back and forth, especially after the administration a couple of years back, after accusing ZTE of not playing fairly and engaging in activity that was unethical or in this case simply illegal, the United States banned ZTE from operating in the US, but then waived that ban and said, “Oh yes, our concerns over national security and spying and so forth, they’re fine because you’ve not paid us a billion dollars.” Which literally, the penalties were about a billion dollars for that. So, it’s been an interesting week. It certainly has added to the complexity of the US/China trade deals, and I think made it much more difficult for the negotiations to actually be fruitful in the near term.

Olivier Blanchard: Dan?

Daniel Newman: Yeah, this is a massive political weapon right now. 5G in itself is one of the largest topics in all of technology, tons and tons of uncertainty around what this technology really means. Actually, I was in at an event this week in Nice and we were talking about killer applications. Right now, the number one killer app for 5G is probably FOMO, the reason everybody’s getting behind it. Because we’re still really figuring out what this is. It’s not in the technical circles, misunderstood. We understand speed and connectivity. But the weaponization of this technology, what does the have and have not mean for this technology? What does having the best of this technology mean?

Trump is not coming across as a particularly smart guy. I don’t personally think he’s probably a very smart guy, although he did somehow become President of the United States. But he seems to know that this is an area that he doesn’t want to lose. It goes back to his decision around securing Qualcomm and keeping them an independent company from Broadcom, who even though they were in the process of domiciling in the Unites States, he did not want to have any company with a foreign interest take control of the prize that is Qualcomm in terms of intellectual property belonging inside the borders of the United States.

Of course, Qualcomm works with China and with all kinds of countries around the world, to provide the technology. And this very generic executive order, Fred that you mentioned, it’s designed to be that way. It’s intentional. This gives the largest amount of control. Why be specific if you don’t have to be? And he doesn’t have to be. So, now he can basically make the decision, like a tick box, with every single deal. Does he want to let it pass or does he not.

So, not only does it give tremendous political power to the US in potentially trying to negotiate with China, of course it gives them a reason to be mad and to try to fight back. But it also gives him a ton of individual power with the corporations that are dependent on the relationships with China. They have significant trade relationship with China, and the semiconductor space is a huge space for that. We buy chips from China. We sell chips to China. That is one thing, despite our multi hundred billion dollar deficit, that we sell a lot of to China and that’s semiconductors.

So, this gives a lot of control over that. And as 5G proliferates, they need what the United States has. Will they always need it? No. But right now, yes. Does that give us more power, more time to become the leader, to gain leadership position? Yes, and it’s one of the few bargaining chips I believe we have. And Fred, as you mentioned, we don’t have anything else to sell China to even come close to closing that gap. Right now, if we can control the technology, we could be the leading 5G player in the world. If we can continue to dominate the semiconductor space, dominate compute, dominate AI, that would give us a stronger, marketable position in the world.

That’s the kind of credibility Trump wants. He wants to be able to stand up and say, “I did this. I made the US the most powerful technological country in the world through my strategy with China.” And like I said, do I agree with it? I’m not sure I would go that far. Do I get what he’s trying to do? Kind of. Is it going to be good for the industry? I don’t think so, not at all.

Fred McClimans: Dan, there’s an aspect of this that is almost a personality type or it’s a negotiating approach, and we see it in other areas. Just today, the administration announced they were going to, not immediately, but take another week of two to decide if auto imports from Europe were a threat to US national security. Again, similar kind of approach, “Yep, importing automobiles, yeah that’s a threat to the US national security, so we need to curb that.” It’s a negotiating tactic for trade issues.

But what concerns me in all of this is that the mechanisms that are being put in place to improve the US position in 5G or to balance the trade deficit perhaps a little bit here and there. All of these things are very easily put in place, but they’re very difficult to take back down again. We’re getting to the point, especially from a technology perspective, we could see sever limits on global innovation because of the trade barriers and the isolationist policies that are being enacted, not just in our country but in other countries as well. These dominoes start to fall everywhere.

As soon as one person becomes isolationist and protectionist, everybody else kind of follows suit there. Now it doesn’t always happen that way, but that’s a major concern, especially given that the US and China, all these issues here, I don’t think they’re easily resolved. I could see the trade issues bleeding over into tech continuously, with tariffs and events like this executive order occurring for the next few years at least, and that’s a troubling situation.

Daniel Newman: Just one note on that because we sort of hijacked the whole thing.

Olivier Blanchard: It’s okay.

Daniel Newman: He picked a term that people react to. So like I said, there’s a lot of flaws, and the world is not ignoring the flaws of Trump right now. But he picks words that he gets support from his base around, and right now national securities want. He’s using that to gain support, “I’m protecting the country. I’m protecting our leadership.” Again, it’s a faux pas.

When you actually look at the flow of semiconductors, chips, components that build compute, that build technology, it’s a very, very fluid system of components going around the world. Of course, you have China and greater China, and then Asian PAC, and you have Israel and you have Europe, and you have North America here. There are people contributing to this process of building compute all over the world, and the product flows that way. But national security, right … it makes me think of when I watch Family Guy, and randomly when Peter Griffin will run for some sort of office and he’ll win by picking like one word that everybody can get behind.

You pick one topic, like no school on Fridays, and then it’s like you could have this great platform. But to have a great platform that’s sophisticated means that the people who listen to you have to be smart. Well, we’ve already figured out people aren’t that sophisticated. Simplicity rules, and right now people want to feel secure. So, I’m kind of maybe taking this off the course a little bit. But the reason it works in his own little world is because he’s picking a topic that these people are very sensitive about.

The problem is, in the real world … and this is the last thing I would like to hear from you, Olivier or Fred, … is it going to be good for tech? My sense is it can’t be that good for tech. All the companies, right now, have to be baking in what this is going to mean for them. So, you’re going to see stocks take a beating, and I don’t know if there’s enough upside in the economy from what we stand to gain from these tariffs. Are the consumers going to pay? Yeah, of course. Anytime there’s a tax, the consumers pay.

That’s really how it works. The business never really pays. And so, when people are like, “Well, raise the taxes on businesses,” look … and by the way, I don’t want to have this philosophical debate here … but as a business owner, I can tell you if you make me pay more tax, that’s okay. My prices will go up. They have to, that’s the only way companies can operate. That doesn’t mean you can’t figure out what the elasticity is in a market. But you just have to realize that’s kind of the game, same thing here with tariffs. You raise the tariffs, prices will go up. How far can you push prices up before people can’t afford to buy stuff, etc, etc? So, same thing’s going to happen here with the stock. If their revenues falter, consumers stop buying. Companies stop buying. Stocks go down. Economy hurts. So, what do you guys think is going to happen?

Olivier Blanchard: Yeah. The tariff issue is almost its own topic, even though it overlaps with this quite nicely. But as you said, tariff is basically a tax. Even if the country that the tariff is being imposed upon initially pays any of this … which usually the importers or the importing agents actually pay the tax, not necessarily the manufacturers in the home country. But ultimately, that cost gets passed down to the consumer or to the user of the service, if not the buyer of a product. So, that’s kind of, to me, settled in economic law, that poop flows downhill basically, or rolls downhill or flows downriver or whatever. That’s pretty much how it ends up.

With regard to this though, the Broadcom executive order, or the executive order rather, that blocks Broadcom’s attempt to purchase Qualcomm last year was very specific. It was drafted by CFIUS, and essentially just laid on the President’s desk as an emergency measure. So, the appropriate people said, “Look … listen, we need to stop this right now because this is a very direct threat to US leadership. We cannot lose this company to a Chinese government proxy like Broadcom, or alleged Chinese government proxy I should say.

That order was ultra-specific, was drafted and signed extremely quickly, really without warning, and addressed a very specific problem in a very specific way. This new executive order is very different. It seems to conflate a number of things. On the one hand, it’s obviously an economic lever in the trade war between the US and China. I think that you don’t have to be cynical to see that.

The second thing is that there is a legitimate concern that China, through some tech companies like Huawei … which it does sponsor and which are believed to be acting as proxies of the Chinese government … are on the one hand, trying to undermine US technology leadership. Which as shady as it may sometimes be, is a market kind of warfare, economic and business warfare. But on the other hand, that some of these companies are somehow planting either spy chips, or more realistically, side doors and back doors into their technologies or vulnerabilities rather, that could then later on be exploited by the Chinese government, or by other governments of hackers or … not necessarily foreign adversaries but bad actors.

So, there is that legitimate concern that there’s strong suspicion that we can’t trust certain types of Chinese technologies, especially with regard to 5G in our communications. Because on the one hand, so much of our future communications are going to be relying on this, but also so much of our future infrastructure, from power plants to basically just manufacturing, water treatment plants, everything is going to be meshed together through 5G with smart sensors and IoT and Edge Compute. So, we have to be very careful about what types of technologies and components we allow into that matrix of technologies.

So, there is that legitimate concern. However, the problem I see here is that the Trump administration has a tendency to cry wolf, and to overplay its national security and national emergency hands. On a political … and we see that on the border with the calling of a national emergency with regard to illegal immigration, which we may or may not agree on this point, but may not be an actual national emergency. Even though it is some kind of level of emergency, I don’t think it rises to that level.

On the other hand, we’ve seen the Trump administration also mention national security when it talks about Canadians and Mexican steel coming into the United States. Which by the way, there’s indications that this policy is being 180 degree reversed today or in the next few days, where I guess Canadian steel is no longer going to be a national emergency. And we see it again here with, yeah, apparently there’s … I’m hearing echoes of a reversal coming very, very soon.

Fred McClimans: Yeah, I heard some of that.

Olivier Blanchard: Yeah. And so, here we have this other national emergency, which really isn’t. It’s a national security concern. Yes, actually it’s layers of national security concerns, but it doesn’t rise to the level of national emergency. And this executive order, the part that bothers me the most is that it’s based on the right sentiment. I think it’s heart is in the right place, but I think it’s, on the one hand, the wrong tool for the job. It’s also, at the same time, too vague and too specific.

So, it’s too vague in the sense that it doesn’t really identify any particular adversary. It leaves it so blank that it’s like a Rorschach test. You can basically plug in any country, any company at any time for any reason. I find that a little bit dangerous. It’s kind of like a blanket executive order that gives the executive full power to prohibit any transaction with a foreign country that deals with communications technology.

As a matter of fact, section one, implementation of the executive order, it says, “The following actions are prohibited,” not maybe prohibited or the government may step in at some point. They language isn’t vague. It’s very specific, “The following actions are prohibited,” period. Any acquisition, importation transfer, installation, dealing in or use of any information in communication technology or service, by any person or company, etc. So, it’s super specific.

And then item one, following that very long paragraph, is essentially the Commerce Secretary, the FCC, United State Trade Representatives, there’s this whole team of people in charge of consulting with each other to determine whether something is a threat. If that group has determined that, “the transaction involves information and communications technology or services designed, developed, manufactured or supplied by person owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary”.

So basically, this is a blanket prohibition of any purchase of any telecommunications technology or services by really any company or any individual from any country whatsoever. That’s crazy. That is not sound policy. And to your point, whether you like globalization or not, our technology infrastructure is deeply intertwined and not divorceable from Chinese manufacturing. Whether you’re talking about your iPhone or a chip maker’s chipsets, a lot of that stuff, most of that stuff is actually made in China. And this executive order could be used to prohibit the importation or sale of any technology components made in China. That, to me, is absolutely not healthy at all for technology.

So on the one hand, I think it could actually hurt US technology companies. On the other hand, in terms of user interfaces and user experiences, when we’re trying to build a global 5G network or a global network of 5G networks I should say, with global standards in which the US is vying for leadership, this could lead us to a world in which US based phones don’t work in other parts of the world. Because everybody has their walled gardens, and they’re not necessarily able to buy technology from each other, and they all start building their own networks. They don’t really talk to each other. That’s, I think, one of the risky, unintended consequences of this type of policy.

Should it actually be enforced? Right now, it’s just words on a page. It’s just a piece of paper. But if somebody who doesn’t understand what they’re doing should try to enforce this and be disciplined and deliberate about enforcing it, technology as we know it would take a very different turn. I don’t think that’s healthy at all.

Daniel Newman: Speaking of taking a turn, I think we could drone about his all day …

Olivier Blanchard: Yeah.

Daniel Newman: It’s definitely a sensitive topic … take the hot seat for a minute here. I’m going to do a subject change here.

Olivier Blanchard: Yes. This wasn’t a podcast. It was conference.

Fred McClimans: Prelude to the Futurum Summit.

Olivier Blanchard: Yes. All right, I will give you guys the last word … 30 seconds each. Dan first, any closing thoughts on this topic before we move on?

Daniel Newman: No. I think we’ve pretty much covered it all here. I think we have to watch closely. Markets are highly volatile based on this, and the semiconductor industry is probably the one that’s the largest stake here in the United States. But the consumer is really the one being left to hang in the balance.

Olivier Blanchard: All right, very good gentlemen. Let’s move on to our Fast Five. So Fred, you can open up.

Fred McClimans: Well, since we’ve been talking a bit about national security and cybersecurity and all those related things, my first Fast Five here today actually touches on of all things, national security. We’ll do it from a de taunt perspective as well that you mentioned. Back during the Eisenhower era, there was a competition that was set up within the US government that furthered development of nuclear weapons. It was called Solarium. You essentially had a core group of lawmakers, advisors, think tanks and so forth that were each given a series of tasks, “How do we solve this particular problem?” They did it from a competitive perspective, the idea as being, “Give this task to three or four groups and we’ll see who solves the problem the best, and that’s the solution that we’ll use,” and just make it an open, competitive issue.

This time, however, they’re applying that same basic approach of competition between exclusive approaches to cyber security. The idea being that we have to come up with a strategy. We’re not talking about specific implementation practice here. We’re talking about just a basic strategy. How do we secure our government, our digital property, our infrastructure from cyber-attack? So, it’s an interesting approach here.

I think in this situation the idea of a little bit of competition will probably spur some interesting ideas and different approaches. And hopefully at the end of the day, they pool the best of these ideas together and come up with a single, unified strategy because we just really have not had one. The closest that we have coming to this … this year we’ve had a couple of executive orders in the last two years that deal with cybersecurity issues. There is the Cyber Moonshot organization that is out there looking at how we can boost cybersecurity capabilities in the US. But we definitely need, and we haven’t had it in the last 10 years, a really solid strategy for dealing with cybersecurity.

That includes how do we detect an attack and how do you respond to an attack? So that’s it, Solarium, it’s the word of the day that you will probably not hear mentioned again for another 10 years.

Olivier Blanchard: All right, Dan, go ahead.

Daniel Newman: Let’s talk about Cisco earnings, great quarter for the company. I’ve been tracking this one very, very closely. It’s somewhat stable, occasionally may be noted as unexciting, but the company saw a major jump. Four percent revenue, up year over year, 78 cents per share versus a 77 expected, and they beat revenue as well at 12.96 billion versus 12.89 expected. So financially, they’re numbers come in very strong, once again another strong quarter.

But what was perhaps most interesting about his was the guidance they gave going forward. Having already baked in what’s going on in China, the tariffs and its impact, the company’s still expecting in the next quarter a 4.5 to 6.5% revenue growth year over year, and did show an 80 to 82% per share earnings while coming in at over 13.29 billion.

So as we can see, some companies that are planning well, preparing well, continuing to deliver good products and are part of the solution, especially touting 5G as one of their big plays, is actually going to be able to show strength, growth and positive numbers in the wake of all that’s going on.

Olivier Blanchard: Excellent. That’s good to hear. My soul Fast Five today being in the middle … I don’t know if you remember this, but about a year ago … it seems like it was 10 years ago now … there was a little bit of a scandal when people found out that some of the major mobile carriers in the US were selling their customers’ location data to pretty much anybody who was willing to pay for it. I remember there were some stories about private investigators being hired by journalists to prove this as proof of concept, that or 150 bucks or 200 bucks they could find exactly where you were based on your phone. So, everybody’s location data was vulnerable, either for sale or even just being leaked by some third party companies.

And while we find out in the last 24 hours that a letter, or several letters actually, from some of the major US carriers indicates that the practice has finally but unfortunately only very recently come to an end. So, this location data issue, T-Mobile, AT&T and Sprint, all three of them which were listed in the complaint, have notified the FCC that they have ceased to share their customers’ location data, which is excellent news. The only caution I would add to this is trust but verify. We’ve been here before. Some of these carriers have claimed more vaguely that others that they had changed their policy towards that, so we’ll see in six months if the letters are accurate or if they were accurate and they’ve resumed selling our location data. But at least it’s a step in the right direction.

I would put this one in the win column for consumers. Fred?

Fred McClimans: Wow. That’s actually good news. I’m very glad to hear that.

Olivier Blanchard: But check first.

Fred McClimans: Yeah. So instead of a Tech Bites segment, maybe we need a Tech Unbites-

Daniel Newman: Tech Unbites.

Fred McClimans: … Tech Unbites, yeah. For my second Fast Five here, we’ve talked a lot about some of the creepy things that Google has been doing with their technology Duplex as an example, allowing Googles tech to emulate a human being, a person, and be tasked, “Duplex, go find me a reservation at a restaurant,” and Duplex will make the phone calls and negotiate on behalf as if it were a person. Here’s something they’ve been doing that’s actually really cool, same kind of area, but really cool stuff involving speech.

Last year, the company came out with accents in their Google Translate program. I don’t know about you guys, but I use Google translate all the time. They came out with the ability to have accents embedded into translations when Google is speaking words. They also added an interpreter mode, also very cool, early this year. Now they’ve come to with something they’re showing off called the Translatotron. That’s a word that I’m hoping does not become part of our vernacular here. But the Translatotron essentially does something different than Google has done in the past or that don’t think that anybody really has done.

Usually translation from speech to speaker is done by taking what you’re saying, converting it into text, doing a translation in text, and then reading that text. Google is bypassing that text process, literally taking what I would say, translating it on the fly in near real time and presenting it back out in a different language. Not only are they doing that, but the speech mechanisms that they’re using has the ability to learn your speech patterns, or at least mimic your speech pattern, so that the voice coming out at the other end uses your phrasing. It sounds the way you sound.

The tone of the voice isn’t quite you yet, but the ability to actually add inflection into the translation is just absolutely amazing. So the Translatotron, I’m going to put that right up alongside the Transmogrifier from Calvin and Hobbes as words that I will probably overuse in the next 12 months. That’s my second Fast Five.

Olivier Blanchard: That’s very cool. All right, Dan?

Daniel Newman: All right, circling back to me … HPE makes a splash today. Hewlett Packard Enterprise in case anybody still doesn’t know the difference, they’re buying a super computer maker Cray, like Cray-Cray, for 1.3 billion dollars in a deal. And in case you don’t know Cray, they build super computing systems, best known for their ability to handle massive data sets, converge modeling simulation, artificial intelligence and analytics workloads. They’re based in Seattle. They have about 130 employees and did about 456 million on revenue last year.

HPE’s big goals seemingly are to, one, grow their footprints in federal and academia as well as the ability to now sell super computing products to their significant commercial clients. They’re expecting to close the deal first quarter of fiscal year 2020, which I believe is the very end of the calendar year of 2019. So, big news, interesting news, supercomputing, adding capabilities within HPE. I see this as a positive move for the company, entering into new markets and being able to offer new products that are going to support, especially the movement into AI and analytics for all their current commercial customers.

Olivier Blanchard: I’m old enough to remember when Cray was kind of a household name, at the intersection of science fiction and tech.

Fred McClimans: Oh yeah, Cray super computers …

Olivier Blanchard: That’s right.

Fred McClimans: … they were amazing. That company goes back to the early ’70s, way, way back. The fact that they’re still around today, I think is testament to their staying power and their technology. Remember the round, Cray’s were round rather than the rack and stack approach that everybody else used at the time, or even today.

Olivier Blanchard: All right. So shifting gears a little bit, we are now switching to our Tech Bites of the week. This came as a surprise, but Facebook and Apple are not going to attract our ire this week. They were kind of on the quiet side, no scandals this particular week, better luck next week. This one, this Tech Bites or the one that caught my eye this week has nothing to do with that. It’s actually based on a new report or recent report from the Georgetown Law Center on privacy and technology, or CPT for short, which did a study and uncovered a widespread abuse by the NYPD, the New York Police Department, of facial recognition technology.

Let me frame this really quick. As you know, a lot of police departments around the country are already using facial recognition technology acquired from CCTV cameras and a variety of sensors and cameras located all over their cities or their jurisdictions. They use facial recognition software to clean up the image and identify potential suspects that show up in these videos or in these photographs from surveillance cameras and otherwise, and then use this information to not only identify, but locate and apprehend these suspects.

As it turns out, the NYPD has been tweaking some of these pictures, essentially not really Photoshopping them, but adding elements to them, manipulating those images to make them look different. An example of that would be in an image, a potential suspect might have their mouth open because they’re yelling something. An open mouth doesn’t really lend itself really well to the type of photo that you would show around a neighborhood to ask, “What is this person?, or to go through some of the facial recognition software that’s on file.

Typically, people’s photographs have their mouths shut. They have more neutral or maybe a slightly smiling posture. So, what they’re doing is they’re changing aspects of the face to make it match what they think it should look like, which is very unethical because you can essentially add whatever facial elements you want to an image, and make anybody look like anybody else. And essentially, this could be abused by police departments in cases where they want the suspect that they like to be a closer match to the image that they have of a potential crime being committed. And so, now they’re altering evidence.

And so yeah, the NYPD has been caught allegedly manipulating images to investigate. They claim that it’s more for clarity, for expediency, but obviously there are serious ethical concerns here. I just wanted to make everybody aware that this is happening because this is one of those nightmare scenarios that we sometimes talk about, about the dystopian kind of Big Brother aspects of technology being misused, even if it’s misused for the right reasons, still having the potential to be misused and it becomes dangerous in the wrong hands.

Fred McClimans: Oh, no doubt. I think that’s one of the reasons why just this past week San Francisco voted to ban the use of facial recognition tech within the city agencies there. What struck me, going through the articles on this, was one of the first examples they used there where somebody was just simply misusing facial recognition technology where somebody was describing a suspect and apparently said the guy kind of looked like Woody Harrelson. So they uploaded a picture of Woody Harrelson into the system and said, “Find us somebody that looks like Woody Harrelson.”

It’s far ranging, but think about the way this tech is used in your phone apps now with the removal of background scenes. Enhance your appearance before you post your selfie. So, the tech is real. It’s not always perfect, but it’s making its way into our everyday use where not only can we not necessarily trust an image that we see as being the legitimate image, but a lot of people are to the point where they don’t want the original image. They want the AI enhanced image. I think that [inaudible] right there is going to place a bit of a conflict that we really need to address here. Is it acceptable to in any way enhance or alter a photograph using computer tech that we may not fundamentally understand?

Olivier Blanchard: And in this case, the police officer or the law enforcement officer is injecting their own bias into a piece of evidence that will at some point be used as probably cause in a hearing in the issuing of a warrant for someone who may not have anything to do with the commission of a crime. And so, you’re predicating the possibility of guilt on AI bias and biased inputs, and that’s unacceptable. Dan, what do you think?

Daniel Newman: Yeah, I’ve got to say it’s unbelievably questionable gray area policing. The alteration of an image, especially whenever you’re adding more than enhancing … I understand enhancing. In order to get data you need license plates, get closer looks at features. But to actually change and manipulate, now you’re stepping out of bounds.

At what point does it become framing someone, misleading, putting the wrong person … of course these are being controlled by not just technology bu people. So, could someone alter or change an image just for revenge? Stuff like that, it just goes too far. It gives too much control and too much power to people that probably shouldn’t have it.

Olivier Blanchard: Exactly. Okay, I’m glad we’re all in agreement. Okay, and finally our crystal ball. Let’s circle back to our main topic, which is something we like to do with our crystal ball. Since we’ve already had this discussion, gentleman, a year from how do we see an actual, all out and specific ban on Huawei and/or ZTE telecommunications equipment in the United States?

Fred McClimans: Wow. Dan, you want to tackle that one first?

Daniel Newman: Yeah. I think what we will do is we will probably keep the specifics as generic as possible. I do see … wow, that is a really great question, Olivier. I think we’ll avoid-

Fred McClimans: I didn’t mean to stump you guys.

Daniel Newman: No, it’s not even so much stumped, I just think it’s a difference of the political versus the actual landscape in intelligence. So politically speaking, we probably will never close a door entirely that we don’t have to close. From an infrastructure standpoint, we will move full steam ahead with infrastructure build outs without either of those companies as part of our plan. I didn’t answer your question, so I guess I’m going to say no it won’t be specific.

Olivier Blanchard: Okay. All right. The reason I ask is because up until this point, the EO doesn’t mention Huawei or ZTE by name. But the President has mentioned ZTE by name, and law enforcement and national security persons in the US and in other countries that are allied with the US have mentioned Huawei by name, basically labeling it a national security risk. So, there’s a little bit of a disconnect between the EO, which doesn’t mention Huawei, and everybody else adjacent to the EO who does mention Huawei by name. So, what I’m asking really is are we closing the gap in the next year? So 12 months from now, does the EO which doesn’t reference Huawei and everybody else who does, does that converge into a policy which explicitly bans or at least very seriously restricts Huawei’s ability to operate or to sell technology equipment in the United States?

Fred McClimans: That’s a really tricky one because implementing that type of an outright ban, at that point you cross a line. You go from threatening something to actually executing, and the implications there can be a lot greater. But as we’ve talked in the past, the US is already putting pressure on its allies to not deal with Huawei and ZTE and potentially others in the future. We’re just trying to strongarm our way through those policies there. But it’s one thing to be able to have to just say “we suggest you don’t” or “We don’t want to do business with people that also do business with them.”

It’s another to have an actual legal position behind it that forces the issue. I think that’s the threat that we’re looking at with here, that this may just end up being the threat that we’ve got annual reviews, we’ve got anywhere from 40 to 150 days to come up with initial assessments under this executive order. I think the threat of that may be enough to push people in some direction. But if this trade issue is not resolved within the next 12 months, then yeah, I think you’ll see Huawei’s name sitting on a legal something, not necessarily this executive order but on a legal something that says, “Look, that company is now banned,” case closed.

Olivier Blanchard: I think that is key. Even though this is framed as a national security issue and even as a national emergency, which again it isn’t yet, it’s entirely predicated on where our trade war, or let’s just call them our contentious trade negotiations with China, really end up. So, if a year from now those negotiations between the US and China are looking better than they are today, then I think that we don’t see a Huawei ban.

If they continue to deteriorate, I think it’s very likely that we will. And so again, this circles back to our point that it’s not really, truly a national security issue is it, because those concerns wouldn’t change. There would be … there was not change in a country’s capabilities to basically infect us or inject us with technology that can then be used against us. That doesn’t change based on whether or not we have a good trade relationship. Like zero, there’s zero impact.

Fred McClimans: Like I said earlier, there’s a tendency to take an issue and turn it into a crisis because a crisis gets more attention. It’s kind of like the little kid that cries wolf story there. But crying wolf, you get that attention. You also get credit or more credit when you fix that particular issue. In this case here, with the cybersecurity implications surrounding Huawei and ZTE and China, there’s an interesting aspect here because all the evidence is point to China … to be blunt about it … stealing intellectual property, using technology to surveil within the US. That’s, I think, legitimate.

You have various government organizations in the CIA, NSA and part of Homeland Security and on down, anybody that you talk to about this and at any public hearing that you see about this matter, they all come out and say, “Hey look, yeah, we’re uncomfortable using Huawei equipment in our own networks. So, there is a concern there. And my concern is not necessarily with that because I think that’s a difficult thing to address, but my concern is the rest of the country gets thrown under the bus when it becomes, “Well, in exchange for this great trade deal, we’re going to ease the restrictions on Huawei selling into the United States and give them access to our market.”

Not that dissimilar from ZTE that was accused of breaking some rules, and hey a little board change here and a billion dollars later they’re back in business. So, that’s the concern that I have, that this cybersecurity threat becomes secondary to achieving a trade deal in a trade negotiation that is increasingly ugly, and where this kind of an asset may come into play. That’s my short crystal ball.

Olivier Blanchard: I totally agree with what you’re saying, so we are once again in agreement. Okay, well we have to close this for this week, otherwise we’ll be putting people to sleep with our policy discussions. We’re nerds. We can talk about this all day.

So for Fred McClimans and Daniel Newman, I’m Olivier Blanchard, thanking you for listening to this edition of FTP, Futurum Tech Podcast. There will be plenty of more tech topics and tech conversations right here.  Please be sure to subscribe to us on iTunes.  Join us, become part of our community. We would love to hear from you. Check us out at futurumresearch.com. We’ll see you later.

Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

About the Author

Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies.  Read Full Bio.