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'Pragmatic' Beijing is what's stopping US and China from a 'blow up,' former central banker says

  • China looks like it knows how to handle President Donald Trump's administration to avoid worsening conflict, said former Indian central bank head Raghuram Rajan.
  • The U.S. and China have clashed on both trade and political issues, and it's Beijing's pragmatism that's preventing conflict between the countries from blowing up, Rajan said.
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Among the countries that the U.S. has taken issue with, China has stood out for knowing how to handle President Donald Trump's administration to avoid worsening conflict, former Indian central bank governor Raghuram Rajan said Tuesday.

In fact, Rajan said at the Nomura Investment Forum in Singapore, it's the pragmatism on the part of the Chinese leadership that has prevented tensions between the world's two largest economies from escalating.

Trump has said unfair Chinese practices are to blame for the wide trade balance between the two countries and has accused the Asian economic giant of stealing intellectual property from American firms. Beyond that, both countries have also clashed over China's militarization of disputed islands in the South China Sea.

"All that makes for a very volatile combination," said Rajan, now a finance professor at the University of Chicago Booth School of Business.

"If it were not for the fact that we have a very pragmatic Chinese administration, which also understands how to play its parts with the U.S. administration, this would be something that almost surely be heading towards a blow up," he added.

The best case scenario in the ongoing trade tensions is that China makes some concessions that would make it difficult for the U.S. to reject, said Rajan, without going into specifics.

On the other hand, it's "not clear there's a basis of dialogue at all" between the U.S. and the European Union given the tough stance taken by both sides, Rajan added. The E.U. has recently pushed back against the U.S. with retaliatory tariffs of its own.

"The Europeans seemed to have a much bigger sense of betrayal," he explained, adding that tensions between the sides could deepen as leaders aren't backing down.