Treasury Secretary Henry Paulson urged China to undertake a broad range of
economic reforms and to have more flexible yuan.
But Paulson let it be known that the Bush administration would firmly oppose
any efforts by Congress to erect trade barriers in response to America's large
and growing trade deficit with China, which last year hit a record $202 billion
(euro159.34 billion).
"Protectionist policies do not work and the collateral damage from these
policies is high," he said Wednesday in a speech in Treasury's ornate Cash Room.
"We will not heed the siren songs of protectionism and isolationism."
Paulson sought to lower expectations that he will achieve any major
breakthroughs when he visits Beijing for two days of talks with Chinese
officials next week.
While former Treasury Secretary John Snow, Paulson's predecessor, pursued an
increasingly tough line that China needed to move more quickly on the currency
issue, Paulson, who took over from Snow in July, adopted a less confrontational
approach.
He mentioned the currency issue as one of a number of economic reforms that
China needed to pursue along with modernizing its farm economy, opening up its
financial system and pursuing domestic-led growth rather than relying so much on
exports.
"These changes will help create the millions of jobs that China needs to
generate annually and will help create markets for U.S. exports of goods and
services," Paulson said.
Analysts said they believed Paulson, who gained his expertise on China from
the 70 trips he made to the country as head of investment giant Goldman Sachs,
was dialing down the rhetoric in hopes of achieving better results.
"The Chinese never want to be in a position where they are seen as moving in
response to external pressure," said Nicholas Lardy, a China expert at the
Institute for International Economics.
Paulson sought to put the need for a more flexible currency in the context of
a move that would help the Chinese government prevent a "boom and bust" economic
cycle in its own country as well as dampening protectionist pressures around the
world.
"To be underestimated only at China's own peril is the fact that their
currency exchange rate is increasingly being viewed by their critics as a symbol
of unfair competition," Paulson said.
Democratic critics have charged the administration has not done enough to
deal with the soaring trade deficits, which they blame as a major contributing
factor in the loss of nearly 3 million manufacturing jobs since President George
W. Bush took office.
One bill being pushed by Democratic Sen. Charles Schumer would impose 27.5
percent tariffs on all Chinese imports unless China does more to allow its
currency to rise in value against the dollar as a way of boosting U.S. exports
to China and reducing Chinese imports to this country.
Schumer said that he was not concerned by Paulson's apparent change of tone,
saying he had been effective at Goldman Sachs in dealing with the Chinese.
"But if he comes up empty-handed, we will be disappointed," Schumer said,
saying he still intended to push for a vote on his legislation by the end of
this month if there is not more movement on the currency issue.
American manufacturers contend that China's currency is undervalued by as
much as 40 percent against the dollar, making Chinese goods cheaper in the
United States and American products more expensive in China.
Frank Vargo, vice president for international affairs at the National
Association of Manufacturers, said he was not worried that Paulson was
downgrading the currency issue.
"Paulson is putting his own style on this," Vargo said. "His way is not to
get out a big baseball bat and start beating them."
To underscore the importance of the Beijing talks, Paulson will be
accompanied by Allan Hubbard, chairman of President Bush's National Economic
Council.
Treasury officials said that Paulson spent the past several weeks working on
the speech, including receiving briefings from China experts from both parties
and holding a number of staff meetings at his home.
Paulson said the United States has nothing to fear from China's emergence as
a global economic power, one that is expected to overtake the United States as
the world's largest economy at some point in the coming decades.
He said the message he will deliver next week will be, "We want you to
succeed."
He will travel to Beijing for talks on Thursday and Friday after first
attending the annual meetings of the 184-nation International Monetary Fund and
the World Bank in Singapore.
