US treasury secretary uses first trip to China to cool rhetoric

Paulson came away empty-handed in terms of Chinese commitments to deal more quickly with long-festering trade problems such as China’s currency system or its widespread piracy of US movies and computer programs.

The one achievement announced during four days of talks with Chinese officials was the establishment of a US-China strategic economic dialogue that will be led by Paulson and Chinese Vice Premier Wu Yi.

The group, which will include other top officials from both governments, will meet twice a year to deal with long-range economic issues.

Critics noted that the new panel will join a number of other commissions created over the years that have all failed to contain the widening trade chasm between the two countries, which is on its way to easily surpassing last year’s $202 billion record.

“It’s bureaucratic gimmickry. America’s domestic manufacturers and working families don’t need another talk shop,” said Alan Tonelson, a research fellow at the US Business and Industry Council, which represents mainly small manufacturers.

But other business groups praised the new forum, saying it would ensure that US grievances are reviewed at the highest levels of both governments.

The announcement was seen as another step in Paulson’s efforts to restore some of the Treasury Department’s lost clout. Paulson got assurances from the White House that he would have more of a say in policy deliberations than his two predecessors, Paul O’Neill and John Snow.

One sign of Paulson’s influence was the fact that Allan Hubbard, chairman of the president’s National Economic Council and a close Bush friend, accompanied Paulson on his trip to China.

Paulson has also lured Deborah Lehr, one of Washington’s leading China experts, back into government service as his senior adviser and the top staffer for the new joint forum.

The forum will coordinate administration strategy with a number of other Cabinet agencies, not just on economic concerns but also on energy, health and environmental issues.

“Paulson is staking out a role as the administration’s coordinator on a wide range of China issues beyond those normally handled by Treasury,” said Nicholas Lardy, a China expert at the Institute for International Economics.

Paulson used the trip to highlight his own close ties with Chinese officials, built up during some 70 trips he made to China while at Goldman Sachs, where he enjoyed a good deal of success winning business for the investment firm.

Believing the administration needed a new approach, Paulson toned down the rhetoric and the expectations for quick success. Those moves were seen as smart, given that tough talk from Snow over the need for China to revalue its currency had met with little success.

“This is a new era in US-China relations and we could not be better positioned in having someone of Hank Paulson’s stature dealing with the Chinese,” said Myron Brilliant, vice president for East Asia affairs at the US Chamber of Commerce.

Paulson was scheduled to meet in the upcoming week with Senators Charles Schumer, a Democrat, and Lindsey Graham, a Republican, the key sponsors of legislation that would impose penalty tariffs of 27.5 percent on all Chinese products coming into the United States unless China goes further to revalue its currency.

American companies blame the loss of nearly 3 million manufacturing jobs since Bush took office in part on a Chinese currency they contend is undervalued by as much as 40 percent. That makes Chinese goods cheaper for American consumers and US products more expensive in China.

Schumer and Graham have been promised a vote on their legislation in the upcoming week. Many analysts believe it is likely to pass, given the growing anti-trade sentiment in a nation facing skyrocketing deficits.

However, the measure is not expected to become law this year. The administration opposes the bill and there is no companion measure in the House.

Schumer said in an interview that it was still his inclination to move forward with the legislation to send a message to China, although he said wanted to hear a report from Paulson on his trip.

The National Association of Manufacturers urged senators to vote against the proposal while the National Council of Textile Organizations urged support for it, saying it would send a “strong message that millions of US workers will not be put at further risk because China refuses to play fair.”

Frank Vargo, vice president for international affairs at NAM, said protectionist pressures will continue to build in this country unless China moves more quickly to allow its currency to rise in value.

“In China you have reformers who want to change and hard-liners who are very concerned about change,” Vargo said. “Hopefully, Paulson will be able to use his knowledge of how China works. They have a huge amount of respect for him.”