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Treasury head defends diplomatic approach to trade problems

WASHINGTON, DC - 01/09/06 - US Treasury Secretary John Snow is warning against protectionism, which he says can jolt financial markets and complicate the Bush Administration's efforts to manage a strategic relationship with China.

This, despite some Chinese trade and economic policies and practices that he acknowledges "have continued to create problems for US businesses and caused negative reactions in the Congress."

The Chinese "do need to clean up their act on intellectual property, they do need to understand that trade is a two-way street, and ... we're not satisfied one bit on the currency issue," said Snow in recent comments before the US Chamber of Commerce (USCOC), the Washington, DC-based business lobbying group.

But, he was quick to add, "It is important to resist protectionist pressures and carefully manage the relationship with China in order to make it mutually beneficial."

Snow said he is "very, very apprehensive of how markets would react to the sight of the United States, a leading free trade country in the world, in the forefront of opening up markets, going the other way on China."

Congressional measures that would penalize Beijing with tariffs for keeping its currency undervalued "would invite negative reactions from other countries and financial markets," he said.

Several bills currently moving through Congress would impose additional tariffs on Chinese imports unless Beijing relaxes its currency exchange regime. 

Proponents of those measures assert that, even after some adjustments in the regime in July, the Chinese yuan remains undervalued, making Chinese products more competitive compared to goods made in the US and other countries where currencies better reflect market forces.

At a press conference preceding his address, Snow urged China to relax its currency exchange mechanism, further suggesting that the Bush Administration's decision to deal with the Chinese government on this and other issues through diplomatic contacts rather than through punitive actions has been bringing "positive" results.

"They [the Chinese] are putting in place mechanisms to allow their currency to have greater flexibility," he said.  "So I think we're on the right course."

The White House has consistently resisted calls from Congress and some business leaders to name China a currency manipulator and impose on it related sanctions.

The day before Snow's presentation to the USCOC, Chamber President Thomas Donohue said his organization will "significantly" expand an international program to stop intellectual property (IP) theft, counterfeiting and piracy by disrupting the counterfeiters' supply chain. 

He said the business group "will also conduct other campaigns in China and other countries where IP problems are most severe."

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