Shehzad Qazi, China Beige Book International Managing Director, breaks down the takeaways from President Biden's meeting with China's Xi Jinping, the outlook on superpower tensions surrounding Taiwan, China's zero-COVID policy, and supply chains.
JOE BIDEN: We're going to compete vigorously, but I'm not looking for conflict. I'm looking to manage this competition responsibly. China and the United States should be able to work together where we can to solve global challenges that require every nation to do its part.
SEANA SMITH: That was President Biden after meeting face-to-face with Chinese President Xi Jinping today. The two met for three hours ahead of the G20 summit amid rising tensions over Taiwan. Joining us now is Shehzad Qazi, China Beige Book International managing director. And, Shehzad, there weren't exactly high hopes going into this meeting that we were likely to see significant progress, but I'm curious just from what we know-- a number of topics, of course, were touched on-- what's your takeaway from today's meeting?
SHEZAD QAZI: Yeah, from a market standpoint, a bit of a non-event, right? The White House kind of managed the expectations that it would be very low. No deliverables were expected, so on and so forth. I think Taiwan is probably the biggest thing everybody's-- everybody should be focused on. Now, I understand that there's a lot of conversation around Taiwan and American red lines and so forth.
The reality is this. Any Chinese movement on Taiwan is going to be driven ultimately by what I think Secretary Xi's personal and political priorities are and what his timeline is. That is what's going to drive this, not necessarily what a US president sitting across from President Xi tells him. And markets need to really understand this one point.
DAVE BRIGGS: When does something happen in your estimation? How does the US react? And if you can, even give us a glimpse at the economic impact of such action.
SHEZAD QAZI: The economic impact globally is just going to be very, very devastating. I mean, we're right now talking about dependence on ships and semis. And I mean, just that one industry sector itself is going to probably grind to a halt for a while, if not more.
But the real risk that I always like to highlight is not even of the US and China getting into an actual military confrontation, but accidental war, accidental or rather, I should say, accidental conflict, right? That is a very, very serious risk that both sides need to continue managing and trying to get ahead of.
RACHELLE AKUFFO: And, Shezad, I want to ask you about the tone. Obviously, when President Biden got elected, we heard this harder line on China. And then closer to the midterms, we saw something of a softening. But then you had the CHIPS Act, which then also amped things up as well. What do you think comes now in terms of the tone that's next out of these two leaders?
SHEZAD QAZI: Yeah, look, I mean, the Biden White House over the last couple of years has really struggled to come up with a coherent China policy. There's been a lot of infighting. Now the chips restrictions and the technology restrictions are internally for them a pretty major win. That said, markets had really, I think, overreacted when this stuff first came out because the truth is a lot of companies are going to be able to continue operating as they were through backdoor licenses that the Department of Commerce does give out-- as a matter of fact, has given out-- to some of the biggest players.
So, again, the implication for investors is a lot more nuanced on this. And I think policy continues to remain a lot less aggressive than it may seem on paper or where the rollouts suggest at first.
SEANA SMITH: And, Shezad, something that has moved the markets as of recently, of course, is the easing of zero-COVID policies in China, the expectation there, what that is going to ultimately look like, the economic impact. I guess when you talked to us first just about the process of easing some of those restrictions, it doesn't sound like it's going to be something that happens right away.
SHEZAD QAZI: Yeah, that's exactly right. Ending zero-COVID, it's not going to be like a switch of a button, turn off or turn on. It is a process. It's going to involve, as we're starting to see somewhat perhaps right now, introducing certain relaxations, such as perhaps not requiring a test to walk into every government building in certain cities. Now this is not uniform. This is not a blanket new rule.
But the thing we need to be watching out for is this. You get perhaps a little bit of progress, markets get really excited. What happens when you get that next outbreak, and the government decides at the local level to roll back the, quote unquote, "easing" that had just taken place? So there is going to be probably the chances of several, I would say, ugly trading reversals along the way.
The second thing is the economic impact. Now, you need to have a substantial level of opening before and relaxation, which we are far away from right now-- maybe at some point in the next year, we get that-- for businesses feel comfortable to say, yes, we'll invest. Yes, we'll hire because this is now looking like the tide is turning.
DAVE BRIGGS: We've had so many false starts, ups and downs with the COVID reopening. Does Xi care about the economic impact, and how far away are from supply chains truly returning to normal?
SHEZAD QAZI: Xi does care about the economy. However, Xi cares about constraining the spread of the virus more because if this virus were to run amok, you would see the Chinese healthcare system come under very, very serious strain, very pressured, even break down. Xi cannot afford the millions of debts that other countries perhaps have seen. And the economic impact of that would be even worse.
And the point remains, controlling COVID and the spread of COVID is going to be priority number one. And if that means taking an economic hit for it, and as we've seen over the last two years, that's where we're going to get.
RACHELLE AKUFFO: And, Shezad, the phase one trade deal seems like eons ago when it was negotiated under the Trump administration. But what do you see as the next phase of this? Because we know that the Treasury Department and the Biden administration really having some issues over whether or not to reduce some of these tariffs to really balance inflation. How do you see that proceeding?
SHEZAD QAZI: Yeah, I think it's been somewhat disingenuous to argue that tariffs were the big contributor towards inflation, as much as folks inside of Treasury have also and, of course, the Treasury Secretary herself have tried to push that argument. They really are, the White House, the administration really is at an impasse right now between the USTR, the Treasury Secretary, and not being able to align on the issue.
The Commerce Secretary's position has shifted a little bit. I don't foresee too much progress-- or too much progress, really, in either direction, I should say, on the issue of tariffs. The president himself has decided that he'd rather just put the issue on the back burner and move on to other things.