Top Chinese banker warned Beijing against tit-for-tat trade war with U.S.: ‘We should pick our battles’


The former chief of the top Chinese lender to foreign countries pleaded with the government to avoid a tit-for-tat trade war with the United States, according to the transcript of a just-published speech from September.

The speech by Li Ruogu, the one-time head of the Export and Import Bank of China (China EXIM), the massive state-owned lending institution that provides funding to foreign companies for the purchase of Chinese-made goods and services, provides new details regarding the Communist government’s internal struggle over how to react to and deal with the Trump administration’s aggressive tariff regime, the South China Morning Post reported.

“When the weak side is fighting a war against the strong side, the weak side must know how to make a retreat. It will not work if the weak side only knows how to fight head-to-head,” Li said, according to the speech transcript.

“Therefore, I suggest that we must pick our battles. A concession is not a surrender, it is intended to win the advantages [down the road]. I don’t think a tit-for-tat approach is workable in the U.S.-China trade dispute,” Li added, according to the speech which was not published at the time but has been released in the Chinese-language Economic Herald, a monthly publication run by China Citic Group, a state-owned financial conglomerate, the SCMP noted.

In addition to revealing internal differences, the speech also helps explain why Beijing has suddenly become more conciliatory towards the Trump administration’s trade objections in recent months.

Li’s speech was delivered three days after a third round of bilateral trade tariffs were implemented.

The former EXIM bank chief, who headed the institution from 2005 to 2015, also pushed back on the Chinese government view that a trade war with the U.S. would only reduce China’s gross domestic product by less than a half-percent.

“I don’t know how they calculated it,” Li said. “The loss of US$500 billion in exports [with the US] will have a tremendous impact on employment, social stability and many families … a full-scale evaluation is vital to decision making.”

The former top banker also criticized Chinese media for distorting the causes and effects of the trade war.

“Our newspapers and TV stations concentrate on the opposition of a majority of American firms… but they ignored the fact that those firms first complained to the U.S. government of unfair treatment in China,” Li said.

“We did not tell our people that the U.S. made a careful evaluation of the impact of the trade war, rather than making an impulsive decision,” he added. “It will bring problems if we insist on fighting and lose the market accordingly.”

Details of Li’s speech come amid reports that China is willing to spend $1 trillion in order to completely wipe out the trade surpluse it has with the U.S.

It also comes amid reports that China’s economy is cooling and has expanded since 1990.

“You gotta remember one thing, a strong man like [Chinese] President-for-Life Xi Jinping would not even be negotiating with President Trump, they wouldn’t even come to the table if we weren’t holding a knife to their throat, a gun to their head, if they weren’t in danger because of what we’re doing,” said Donald Luskin, head of TrendMacro, in an interview with CNBC this week.

“The United States is a huge customer of China, and we threatened to disengage with them,” he noted further. “We threatened to throw them into something they’ve never experience before…China simply does not know what a recession looks like.”

Luskin said that recessionary pressures on China’s economy could force large layoffs followed by massive protests and unrest, something the communist government cannot afford if it hopes to stay in power. — Jon Dougherty

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