WASHINGTON -- Treasury Secretary Henry Paulson urged China to undertake a broad range of economic reforms and said the country's failure to overhaul its currency system could raise the threat of a protectionist backlash.
But Paulson let it be known that the Bush administration would 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.
``Protectionist policies do not work, and the collateral damage from these policies is high," he said yesterday. ``We will not heed the siren songs of protectionism and isolationism."
Paulson sought to lower expectations that he will achieve major breakthroughs when he visits Beijing for two days of talks next week.
While Paulson's predecessor, John Snow, pursued an increasingly tough line that China needed to move more quickly on the currency issue, Paulson, who took over 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 US 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 that 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 as well as damping protectionist pressures around the world.