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Chinese President Xi Jinping and U.S. President Donald Trump during a meeting outside the Great Hall of the People in Beijing.

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A decade-long disconnect between the U.S. government and Huawei came to a head with President Donald Trump’s executive order and emergency declaration this week.

The U.S. has insisted the company and its equipment are pervasively unsafe. Huawei has long requested a process through which it could prove the contrary. European nations, the company has said, use a risk-mitigation process, and Huawei has flourished there. The U.S. has refused, saying big-picture questions about the company’s risk go beyond anyone’s ability to test it.

Here’s what has led the U.S. and Huawei to this point, according to two professionals who have spent much of their careers on the forefront of this debate – and why the issues between the two sides may be intractable.

The disconnect

A risk-mitigation process for Huawei equipment, like those used in Europe, could have been simple, according to Andy Purdy, chief security officer in the U.S. for the Chinese telecom giant.

“Both Nokia and Ericsson operate with risk-mitigation agreements,” said Purdy, who formerly served as a top-ranking cybersecurity official for the Department of Homeland Security. Huawei has long requested a testing protocol that matches up with those used in Europe, or for other tech companies like Nokia and Ericsson in the U.S., Purdy said.

“BAE Systems [a large government contractor] is a U.K. company. There’s a process the government agencies go through to vet them,” he said. “We are open to talking to the U.S. government about risk mitigation processes. Right now, the U.S. government is not willing to discuss that with us.”

The absence of this process — and the continuous testing and retesting that go along with it — are the real national security risks to the U.S., not Huawei, Purdy said.

But the U.S. government, particularly its intelligence agencies, has been insistent for nearly a decade that Huawei has been in collusion with Beijing’s Communist government on developing its technology, with the goal of giving it an espionage advantage.

The alleged relationship between Huawei and China’s government defies the traditional risk process for two reasons, according to former Homeland Security Secretary Michael Chertoff, because the equipment is so integral to American infrastructure and because the equipment can be changed through future patches or updates.

“Here’s the difference — it’s not just the difference of examining the equipment and the software,” said Chertoff, now head of consulting firm the Chertoff Group. “Once you embed something in the network, there are updates, patches, fixes; all of these create opportunities to affect a system,” he said. This means it’s not necessarily about the equipment and its risk, but a combination of the equipment and the country making it.

“It’s one thing to look at the networks, it’s another thing when you look at [China’s] geopolitics. They want to achieve greater geopolitical power,” Chertoff said.

The would-be importance of Huawei’s telecom gear in the country’s infrastructure is difficult to overlook, Chertoff said. It’s more integral than the tech sold in the U.S. by Ericsson or Nokia, he said.

“I’m sure there are a lot of dimensions to this and even countries that are in some degree rivals, there are some areas that we can reach agreement on,” Chertoff said. “But when you are dealing with core national security issues, it becomes much more difficult when it comes to critical equipment. There can be very unsound geopolitical consequences.”

Specific evidence vs. common sense

One of the issues with the U.S. government’s accusations against the company, which date back nearly a decade, is a lack of specific evidence backing them up, Purdy said.

“I think there is a great skepticism about the rise of China, people who are worried about national security,” he said. “But people just make these bold statements [about Huawei] and they’ve got nothing to back it up, without authority and citation.”

In many ways, Purdy is right. The U.S. government’s accusations against Huawei have only this year been more clearly outlined, through court cases against the company’s CFO, involving allegations of Iran sanction violations; and a trade secrets case in Seattle that had already been settled in civil court. But none of those allegations yet reaches the national security threat level outlined by the Trump administration or previous administrations.

The allegations may even be hypocritical, Purdy said, a dynamic that could be affecting the U.S. relationship with its allies.

“The U.S. used American companies in this way, as was revealed at the time of the Edward Snowden revelations. I don’t think Angela Merkel has forgotten about having her cellphones monitored,” he said, referring to the revelations that the U.S. had been monitoring diplomatic phone calls, and the fact that Germany has largely ignored U.S. warnings on Huawei.

Despite the lack of hard evidence presented in public, Chertoff said the government’s position on Huawei — which long precedes the Trump administration — is also based on a common-sense reading of the country’s political aims.

“I can’t be very specific, but what I will tell you is that as a matter of common sense, there is no question there are these very big companies that are viewed [in China] as national champions,” Chertoff said.

The company has been centrally cast in the trade war between the U.S. and China because it exemplifies seemingly all of the Trump administration’s trade arguments at once: possibly unfair market practices, allegations of spying and intellectual property theft, and China’s desire for technical dominance in the West.

Chertoff cited the Chinese government’s response to the arrest of Huawei’s CFO Meng Wanzhou in Canada, including the arrest of Canadian citizens in China, as an example of how the company and country appear to have close links.

“And if you are a Chinese company and you choose not to honor the suggestion of the government, that can be a problem,” he said. (Huawei has repeatedly denied it would follow Chinese government orders to spy on the U.S.)

Huawei has also contended that the U.S. position is purely economic and protectionist. Chertoff didn’t deny that there is an economic element to the issues, but the economic and national security concern can quickly merge when it comes to infrastructure equipment.

In Europe, for instance, Huawei has a significant marketshare in 5G equipment, and much of that equipment is far more easily upgraded only with more Huawei equipment.

“One of the economics issues is, what does that do to other companies that are competitive?” Chertoff asked. “The idea of getting Huawei to be monopolist would be almost suicidal to a country, because it’s handing over the keys to the kingdom to a foreign government.”

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US-China trade, oil, currencies in focus



Stocks in Asia Pacific were set to trade mixed on Wednesday following developments on the U.S.-China trade front.

Futures pointed to a higher open for the Nikkei 225 in Japan, with the Nikkei futures contract in Chicago at 21,680, as compared to the index’s last close at 21,620.88.

Shares in Australia, on the other hand, were set to see opening declines. The SPI futures contract was at 6,691.0, as compared to the S&P/ASX 200’s last close at 6,724.60.

In corporate news, Japan’s Mitsubishi Motor is set to release its earnings for the first quarter later on Wednesday.

Asia-Pacific Market Indexes Chart

Overnight on Wall Street, the Dow Jones Industrial Average closed 177.29 points higher at 27,349.19, while the S&P 500 also gained 0.7% to finish its trading day at 3,005.47. The Nasdaq Composite added 0.6% to close at 8,251.40.

On the trade front, in-person trade negotiations between the U.S. and China will begin next week, sources told CNBC. They said White House officials are looking at a longer-term timeline.

Meanwhile, Boris Johnson is set to be the U.K.’s next prime minister after winning the ruling Conservative Party’s leadership race on Tuesday. Johnson has previously stated that the U.K. must leave the European Union by the October 31 deadline “do or die, come what may.”

The British pound last stood at $1.2432, after seeing a high of $1.248 yesterday.

“In our view, Johnson’s desire to push for Brexit, deal or no deal, increases the chance of an early general election and some possibly nasty GBP outcomes,” Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, wrote in a note.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.705 rising from levels below 97.5 yesterday.

The Japanese yen, widely viewed as a safe-haven currency, traded at 108.20 after weakening from levels below 108.0 yesterday. The Australian dollar was at $0.6993 after declining from levels above $0.702 in the previous session.

Here’s a look at some of the data set to be released in the day ahead:

  • Hong Kong: NagaCorp earnings
  • Japan: Leading index at 1:00 p.m. HK/SIN, Line earnings for the second quarter, Mitsubishi Motor earnings for the first quarter

— CNBC’s Fred Imbert contributed to this report.

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Snap earnings Q2 2019



Snap shares surged more than 12% in after-hours trading on Tuesday after the app developer reported quarterly results that soared past analysts’ estimates.

The company, which is the maker of Snapchat, posted a slimmer-than-expected loss for the second quarter while exceeding expectations for user growth and revenue.

  • Loss per share: 6 cents vs. 10 cents forecast by Refinitiv
  • Revenue: $388 million vs. $359.7 million forecast by Refinitiv
  • Global daily active users (DAUs): 203 million vs. 192.4 million forecast by FactSet
  • ARPU: $1.91 vs. 1.84 forecast by Refinitiv

“The growth in our community, engagement, and revenue is the result of several transitions we completed over the past 18 months,” said Snap CEO Evan Spiegel in a statement. “We look forward to building on our momentum and making significant ongoing progress in each of these areas.”

Snap’s user base grew to 203 million daily active users. This was the second quarter in a row of growth for the company, which saw its user base shrink from 191 million daily users in the first quarter of 2018 to 188 million the following quarter.

The company reported revenue of $388 million for the second quarter, up 48% compared to a year prior. Notably, the company reported a gross margin of 46%, a vast increase from the 30% gross margin reported a year prior.

“We continue to make significant progress in driving down our underlying unit costs over time, including the cost to deliver a Snap, the cost to deliver an impression, and other key drivers of infrastructure costs,” said Snap Chief Financial Officer Derek Andersen in his prepared remarks.

After a rough 2018, Snap has bounced back in 2019. Its shares have rocketed more than 180% since hitting a record low of $4.99 on Dec. 21.

The stock climbed past $16.50 after the report. Should Snap’s stock open at this price on Wednesday it would be the highest since March 2018. The stock debuted at $17 in 2017.

The company said it expects third-quarter revenue of $410 million to $435 million, which is better than analysts expected. Snap also said it expects between 205 and 207 million daily users for the third quarter, ahead of the 195.5 million analysts expected, according to FactSet.

Snap’s turnaround has been driven by CEO Evan Spiegel’s decision to stop trying to attract all users and instead focus on the company’s core base of younger consumers. Advertisers have flocked to Snap largely because of its augmented reality technology, which has led to improved engagement with users by letting them experiment with selfies and group photos.

In 2019, Snap replicated the past success of its puppy face and rainbow lenses with a gender swap lens that showed users what they’d look like as a person of the opposite sex and a baby face lens that showed them as babies.

“The popularity of these Lenses drew millions of people into our rebuilt Android application, where they experienced the new and improved Snapchat that led to increased engagement,” Spiegel said in his prepared remarks to investors. “The enhancements we have made to our advertising business and self-serve platform meant that we were better able to monetize this increased engagement, leading to accelerating revenue growth.”

WATCH: Here’s how to see which apps have access to your Facebook data — and cut them off

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NSA says election trolls gaining traction



Anne Neuberger

Source: NSA

Nation-states are still active on social media and working to influence public opinion and create rancor, even as companies like Facebook and Twitter have tried to put controls on foreign trolls, said Anne Neuberger, lead investigator on election fraud for the National Security Agency on Tuesday.

Neuberger, speaking at the International Conference on Cybersecurity in New York said the continued increase in availability of cryptocurrencies combined with the emergence of comprehensive social media “influence packages” have given foreign actors new avenues of influence on popular platforms. Neuberger was also named to lead a new cybersecurity directorate established at the NSA on Tuesday.

The specifics on many social media influence packages are often hazy but they can include mentions by high-ranked influencers or the ability to purchase large numbers of fake followers.

Neuberger said the NSA has observed that “foreign adversaries” are today, like prior to 2016, “more focused on driving divisive issues, including inciting people against one another,” both at in-person events and online. Today’s trolls have similar goals to past ones, namely “Making people in a democratic nation question whether democracy is the best way” forward.

The NSA is taking a three-part approach to handling the continued onslaught of elections interference in advance of 2020. Neuberger said the NSA is doing the following:

  • Ensuring the NSA maintains insights into attempts to influence upcoming elections, including partnerships with other countries that may be similarly effected.
  • Finding new, better or more creative ways to share classified information with state and local entities, as well as technology companies that are involved in elections.
  • Working with the FBI, on the influence side, to continue enforcing integrity of elections.

For 2020, Neuberger also said that while the cybersecurity agencies within the federal government are focused on election security, “a big part of that integrity is that each American … is ensuring we educate ourselves, and being aware of what we read online.”

On the voting equipment side, Chris Wlaschin, vice president of systems security for Election Systems & Software, one of the nation’s largest manufacturers of voting equipment, said his company and others have been working closely with the Department of Homeland Security and intelligence agencies to ready for upcoming elections.

He said the diversity of voting equipment throughout the country, given each state’s independence in making purchasing decisions and selecting equipment and methods, is a strength. That’s because the equipment is not interconnected, Wlaschin said, and elections systems today are unable to connect to the wider internet.

Wlaschin also said that he expects mobile voting technology to be adopted in the near future for states that are demanding the option, and that developers are focusing on security of this new technology. “We are working hard to support that,” he said.

Follow @CNBCtech on Twitter for the latest tech industry news.

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