Welcome back to Future. Thanks for subscribing. Consider inviting your friends and colleagues to sign up. And if you have any tips or thoughts on what we can do better, just hit reply to this email or shoot me a message at firstname.lastname@example.org.
Tomorrow: 🎙 Axios Pro Rata Podcast launches! Subscribe to Dan Primack’s 10-minute podcast HERE to get smarter, faster on the collision of tech, business, and politics.
1 big thing: China's coming Russia strategy
A big Chinese trade counter-assault may be on its way: A deliberate devaluation of the yuan, with the aim of offsetting the impact of U.S. tariffs, experts tell Axios.
- If they are right, China will be mimicking an ultra-successful stratagem used by Russia to weather four years of withering western sanctions over its invasion of Ukraine.
What's going on: The yuan has plunged by 4.5% in value against the dollar over the last month, making Chinese goods cheaper in the U.S. and American products more expensive in China.
- That's the opposite of President Trump's aim in lashing China with tariffs, which are meant to squeeze Beijing so it lowers its trade deficit with the U.S., stops forcing U.S. companies to surrender tech advances, and halts thefts of U.S. commercial secrets.
- In response, Trump is accusing Beijing of currency manipulation and threatening to slap tariffs on the entirety of about $500 billion in annual Chinese trade with the U.S.
- China has not officially responded to the latest threats.
As of now, the drop in the yuan's value appears to reflect a selloff by traders watching China's economy weakening, reports the WSJ's Saumya Vaishampayan. But, with both sides digging in their heels and the prospect of a protracted trade war, a determined devaluation appears to be the strongest tool in China's toolbox, economists tell Axios.
"If they want to minimize the effect of the tariffs on their exporters, this is about the only option."— Joseph Gagnon, a former Fed official now with the Peterson Institute for International Economics
- A Chinese currency play would somewhat resemble how Russia finally withstood steadily escalating sanctions slapped on it and key Russian leaders in retaliation for the country's 2014 invasion of eastern Ukraine.
- After a plunge in the ruble's value and a clampdown on almost any new banking or other strategic commercial deals, Russia chose what for it was a nuclear option: It floated the ruble, a step it had avoided through the Soviet and early post-Soviet period.
As a result, from then on, Russia was earning dollars for its sale of oil and gas, but spending devalued rubles for salaries and other government programs at home.
- The economy shrunk and went into recession before recovering, but President Vladimir Putin — determined to withstand the pressure, and igniting a nationalistic anti-American propaganda campaign at the same time — retained wild public support.
2. The deepfake battle
Researchers are in a pitched battle against deepfakes, the artificial intelligence algorithms that create convincing fake images, audio and video, but it could take years before they invent a system that can sniff out most or all of them, experts tell Axios.
Axios' Kaveh Waddell writes: A fake video of a world leader making an incendiary threat could, if widely believed, set off a trade war — or a conventional one. Just as dangerous is the possibility that deepfake technology spreads to the point that people are unwilling to trust video or audio evidence.
The big picture: Publicly available software makes it easy to create sophisticated fake videos without having to understand the machine learning that powers it. Most of the videos swap one person’s face onto another’s body, or make it look like they are saying something they didn’t.
That has ignited an arms race between fakers and sleuths.
- In one corner are academics developing face-swap tech intended for special-effects departments, plus myriad online pranksters and troublemakers. Doctored photos are a stock-in-trade of the internet, but as far as experts know, AI has not been used by state actors or political campaigns to produce deepfakes as yet.
- Arrayed against them are other academics, plus private companies, DARPA and Los Alamos National Labs, all of whom have marshaled resources to try and head off deepfakes.
The deepfake detectives are fighting from numerous angles:
- Gfycat, a gif-hosting platform, has banned deepfake porn and developed a pair of tools to take down offending clips. One compares the faces in each frame of a gif to detect anomalies that could give away a fake; the other checks whether a gif has simply pasted a new face onto a previously uploaded clip.
- Researchers at SUNY Albany created a system that monitors video blinking patterns to determine whether it's genuine.
- Hany Farid, a Dartmouth professor and member of DARPA's media forensics team, favors a physics-based approach that analyzes images for giveaway inconsistencies like incorrect lighting.
- Los Alamos researchers are creating a neurologically inspired system that searches for invisible tells that photos are AI-generated. They test for compressibility, or how much information the image actually contains, since generated images reuse visual elements.
What’s next: We’re years away from a comprehensive system to battle deepfakes, said Farid. It would require new technological advances as well as answers to thorny policy questions that have already proven extremely difficult to solve.
3. Being 30
In the mid- to late-20th century, the American economy and culture were ripe for 30-year-old men, who — more than European and Japanese — typically landed well-paid careers, bought homes, and supported large families. But since then, getting ahead has become much harder, Axios' Stef Kight writes.
- What's going on: Today, 30-year-old millennials are more likely to be still living with their parents and, while earning about the same or less than boomers, are typically saddled with college debt.
- The consequences include: possible slower economic growth and trouble for an older generation that will rely on them doing better.
The background: Millennials now comprise almost a quarter of the population and are the largest generation participating in the workforce. But their median salaries are lower than the prior generation of 30-year-olds, and the financial burdens they carry are heavier.
So far, the trends suggest a break with prior American rites of passage, including marriage and child-bearing:
- Living with their parents: In 1975, when the oldest Boomers were 29, 57% of 18 to 34- year-olds lived with a spouse in their own household. Even as late as 1990, almost half lived with a partner. But in 2016, 31% were living in their parents’ home, making it the new, most common living arrangement for young adults, according to Census data.
- Men are more likely to earn less. In 1975, only a quarter of 25 to 34-year-old men made less than $30K per year, but that number rose to 41% in 2016.
- More debt: In 1989, less than 20% of families had student debt, compared with 41% in 2013, according to the Census. The amount owed almost tripled in that time.
Going deeper: As a measure of upward mobility, 92% of 30-year-olds in 1970 earned more than their parents at that age, according to a 2016 study led by Raj Chetty, a Stanford economist (h/t Roger Lowenstein). But of those who were 30 in 2014, just half earned more.
- In other words, Chetty suggested, it has become much, much harder for young lower- and middle-income workers to earn as much of the nation's growing wealth as they once did.
4. Mailbox — the aging, childless future
Yesterday in Mike Allen's AM newsletter, we published a special report on the childless, aging future facing most developed countries. There was an unusually large response. Below, I excerpt a couple of the emails:
From Reinhard Frenzel, in Tuscon:
- Already decades ago, in a book in 1972, the Club of Rome came up with an estimate that, using then-current technology to maintain a comfortable living standard (no squalor), the planet would be best off with no more than 1 billion people.
- Another dot to connect, which is fairly simple math: The "pain" incurred by a dramatically shrinking population (and, hopefully, it really comes to that!) lasts only for one generation. And incomes have to be redistributed during that time.
- Plus, we can finally embrace automation without the guilt of job destruction. As the Club of Rome already knew so long ago, all that technology already exists.
- The alternative of continuing on a self-destructive, breed-‘till-you-bust binge is, of course, unsustainable.
From Andrew Reinbach, who is writing the forthcoming Sailing Orders, on the naval war of 1812:
- Right now, companies large and small start pushing their employees out the door by 55, largely to avoid pension and healthcare liabilities, but also to keep good, younger employees by giving them a visible, upwards career path.
- As the population ages, the urgency of these issues will only grow, compounded by the fact that typically, the next career round doesn't pay anything like the previous one. This, just as people need to send their kids to school and maximize their saving programs for retirement.
- The above is only aggravated by number two, and made worse by the
spread of robots and AI: Just as the need to provide jobs for longer
periods rises, the number of available jobs will fall — taking with it
the income stream created by taxing salaries.
- It may be, as oft asserted, that this inflection point will eventually produce more jobs than it destroys. But it's useful to remember that the last time
civilization was at a point like this — the Second Industrial Revolution — the lag between the advent of the technology and the production of new jobs was about 60 years.
5. Worthy of your time
How Russia's military is developing AI (Samuel Bendett - Defense One)
Silicon Valley's finger-pointing at China (David McCabe - Axios)
Kissinger, over lunch, on our "grave, grave period" (Edward Luce - FT)
Unraveling Brexit and Russia (Terry Gross - NPR) (audio)
U.S. factory towns turn red (Bob Davis, Dante Chinni - WSJ)
A test of the 4-day work week (Jesse Yeung - CNN)
6. 1 hardball thing: "I am a soybean"
The warning is delivered by a non-threatening soybean, but this talking legume is no weakling: If President Trump persists with his trade war against China, it says, he may lose seats in the coming midterms.
Kaveh writes: The talking soybean appears in an animated video produced by CGTN, the English-language branch of China’s state-owned TV broadcaster. In the middle comes a threat: Hike tariffs too high and China will look to South America to satisfy its humongous soybean appetite.
The background: Soybeans are a primary U.S. export to China, worth $14 billion last year, the New York Times reports. And China, responding to Trump's tariffs and threats of much, much worse, is targeting soybean growing states in an attempt to pressure the president to back off.
Hence the animation — distributed on Twitter and apparently aimed at an American audience.
Among the soybean's talking points:
- The crop is grown primarily in 10 states, nine of which voted for Trump in 2016.
- 62% of U.S. soybeans go to China, which imports 85% of its soybean consumption, one-third of it from the U.S.
- U.S. soybean prices are already dropping — they are down 18% since May.
The soybean points out that things could get worse — if the tariffs mean higher soy bean prices, China may "look to other sources for the bulk of its imports." Specifically, Brazil and Argentina, "could pick up the slack."