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US, China to tackle thorny trade issues at summit

Opening thorny trade talks with China on Wednesday, US Treasury Secretary Henry Paulson said that the rising interdependence of the two economies required flexible exchange rates, guarantees of product safety and reduced trade barriers.

Paulson's remarks at the start of a two-day China-US Strategic Economic dialogue comes against a background of rising protectionist threats from both sides, spurred by China's huge trade surplus and worries within China over soaring inflation, an asset bubble and economic overheating.

The gathering follows a similar forum in Beijing on Tuesday that produced wide-ranging agreements on boosting Chinese tourism to the US, increasing safeguards over Chinese products and opening up mid-sized Chinese cities to imports of US products.

FRICTION

In opening remarks at a faux imperial palace outside Beijing, Paulson warned that "short-term, politically expedient" protectionist measures would harm prosperity and prospects for working through trade frictions.

"The US-China relationship has become central to each nation's interest and to maintaining a stable, secure and prosperous global economic system," Paulson said.

Leading the Chinese delegation, Vice Premier Wu Yi said Beijing had not sought large trade surpluses and said the US could boost sales to China by relaxing restrictions on high-tech exports.

"To address the China-US trade imbalance requires the concerted efforts of both sides," Wu said.

Wu reiterated Chinese concerns about the roughly 50 China-related trade bills introduced this year in Congress, hinting that China would likely retaliate if its interests were harmed.

"I need to be quite candid about this: If these bills are adopted, they will severely undermine US business ties with China," she said.

Washington's trade deficit with China appears set to surpass last year's record US$233 billion, according to US Department of Commerce figures, amplifying calls in Congress for punitive measures on Chinese imports if Beijing fails to loosen its currency regime.

Critics claim that Beijing keeps the local currency undervalued, giving Chinese exports an unfair advantage and inflating its trade surplus.

TRADE SURPLUS

Coinciding with the talks, China announced on Tuesday that its global trade surplus last month totaled US$26.28 billion, showing strong foreign demand for low-cost Chinese goods despite product recalls and warnings over faulty or tainted Chinese goods .

Such increases are sure to complicate their task, and officials from both sides have warned repeatedly of the danger of protectionist measures.

Speaking after Tuesday's talks, US Commerce Secretary Carlos Gutierrez said the answer was to boost US exports rather than limit imports from China.
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