China Beige Book International Managing Director Shehzad Qazi joins Yahoo Finance Live to discuss Treasury Secretary Janet Yellen's visit to China regarding economic tensions. Qazi says that if the US wanted to send a "serious message" to China, Yellen was not the appropriate choice, describing her as "a dove" whose warnings would not be taken very seriously by the Chinese government.
Furthermore, Qazi notes that the Biden administration is "running into some trouble" with its larger industrial policy, suggesting that there is room for improvement in the US approach. He highlights the example of TSMC's planned production delays, indicating that China's government may be conveying the message that the US "can't really compete with us as much as you think."
Regarding Yellen's discussions about not ruling out potential tariffs on China's green exports, Qazi acknowledges that the administration will have to take action by 2025. However, he questions how far the administration is willing to go in imposing trade tariffs. Qazi says the Trump administration's "very aggressive action" on trade would significantly impact prices, but the Biden administration has "a lot more continuity" in its approach.
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Editor's note: This article was written by Angel Smith
Video Transcript
JULIE HYMAN: Treasury Secretary Janet Yellen visiting China for discussions about the US and China's economic relationship. And Yellen saying she's not ruling out tariffs on China's green energy exports, and that the US wants to find a way forward regarding TikTok. With us now to talk more about the trip is Shehzad Qazi, China Beige Book International Managing Director.
Good to see you, Shehzad. So the fact that Yellen is even there is a step forward since obviously there had been some tensions. But what do you think has come or will still come out of this trip that is going to represent more progress than just her being there?
SHEHZAD QAZI: Yeah, you know, I think, first of all, I don't think if the administration wanted to send a very serious message to their Chinese counterparts about overcapacity and China dumping its cheap products abroad, Secretary Yellen was the right person to send. The right person to send probably would actually have been the US Trade Representative, Katherine Tai, who has a very serious agenda on all of these subjects.
Secretary Yellen is widely regarded as a dove. I don't think that the Chinese government and the Communist Party take any warnings coming from her very, very seriously. If this was about the detente, about meet and greet, and keeping things positive and smiling, well, then she was perhaps the right person for that.
JULIE HYMAN: It was interesting that we got the news of the TSMC grant in Arizona today, a Taiwan-based company that's going to be building manufacturing capacity in the US. Was that deliberate? Was that also sending a message at the same time?
SHEHZAD QAZI: Well, not so much probably. But the fact is that the administration is running into some trouble with its larger industrial policy that has to be accepted. I think there are lots of things that can probably be done better.
As we know, TSMC has decided to delay some of its planned productions, and so forth. I think if anything the Communist Party looks at it and says, look, you can't really compete with us as much as you think or you claim that you can.
JULIE HYMAN: Interesting. OK, so when you hear the secretary talking about not ruling out certain types of export controls, how seriously are we to take that? Or do you listen to someone like Katherine Tai in contrast?
SHEHZAD QAZI: Yeah. I think the administration will have to sooner or later do something about this no matter who's president in 2025. That administration will have to do something about this, solar products, EVs, so on, and so forth. Because I think Chinese overcapacity dumping its cheap products abroad, et cetera, threatening industries in Europe and in America, of course, is a very real threat.
So, the question, of course, is, how far do you go in terms of sanctioning or putting trade tariffs rather, I should say, on these products? And then, of course, how do you counter that with also doing industrial policy here? Because we have to keep in mind, tariffs raise prices. And the worst outcome would, of course, be just raising prices on technologies that are necessary for sort of the energy transition that different governments around the world are looking for.
JULIE HYMAN: And how binary is the approach of President Biden versus if President Trump wins election again on that particular topic?
SHEHZAD QAZI: President Trump's team right now is looking for very, very aggressive action. As we've heard, 60% tariffs across the board potentially pulling the United States out of the world. Trade organization ending PNTR with China. All sorts of very hard line tactics.
On the Biden spectrum, I think there's a lot more continuity from the Trump tariff days without starting any new investigations. We know that the USTR has been sidelined without putting on any new tariffs and going piecemeal on the export control piece. The Trump side would be far more revisionist, I think, in its second round than it was even in its first round. And they really shook things up the first time around.
JULIE HYMAN: And to take a step back for a moment as well. What's your current assessment of the Chinese economy, and therefore, the strength or lack thereof that they have in any kinds of negotiations because of that?
SHEHZAD QAZI: The Chinese economy actually isn't doing as poorly as markets kept saying all of last year. And if you look at China Beige Book data, the March numbers that came out, spending consumer spending actually has been looking good through the first part of the year March, looked fairly good. Manufacturing made a comeback I would say. And manufacturing was much stronger in 2023 than anybody realized mainstream at least. So the Chinese economy is not doing that great, but it's certainly not in the dumps as the mainstream or the consensus view had it for a while.
JULIE HYMAN: And there was also the view in some quarters that China was going to be exporting deflation in a more decided fashion. If you look at just at our CPI numbers that hasn't come to pass. But are we seeing that in certain segments?
SHEHZAD QAZI: It can happen. It can happen if this continued a policy of relying on manufacturing to buoy growth or drive the economy forward continues. And we find more and more Chinese products finding their way abroad at very cheap prices. It could certainly happen.
But you're right. We haven't really seen it en masse yet. The China disinflation thesis is very overplayed domestically for sure. There's no evidence of Chinese disinflation really at home.
JULIE HYMAN: All right, Shehzad. Interesting stuff. Thank you so much for coming in. Appreciate it. Thank you.
