WASHINGTON: The Bush administration will oppose efforts in Congress to penalize China for a trade surplus with the United States, Treasury Secretary Henry Paulson stressed on Wednesday.

US Treasury Secretary Henry Paulson makes his first speech on the international economy since joining the Bush Cabinet in July at the Treasury Department in Washington, Wednesday, Sept. 13, 2006.[AP Photo]

"Protectionist policies do not work and the collateral damage from these policies is high," said Paulson while delivering his first speech on the international economy since he took up the post in July.

"By closing off competition and blocking the forces of change, protectionism reduces the losses of the present by sacrificing the opportunities of the future," he said. "We will not heed the siren songs of protectionism and isolationism."

Paulson said that the prosperity of the United States and China is tied together in the global economy, and "how we work together on a host of bilateral and multilateral issues will have a significant impact on the health of the global economy."

He said that the United States must take a strategic view of its relationship with China.

"Both in China and in the United States, we must not allow ourselves to be captured by harmful political rhetoric or those who engage in political demagoguery," Paulson stated.

"Instead, we must realize that the US-Chinese relationship is truly generational and demands a long-term strategic economic engagement on our common issues of interest," he concluded.

The United States is China's largest export market and the second-largest trade partner. Sino-US trade volume reached US$211.6 billion in 2005 with China registering a surplus of US$114.2 billion.

In his speech, Paulson also said that the United States has nothing to fear from China's emergence as a global economic power.

"The tasks faced by Beijing are so daunting that the biggest risk we face is not that China will overtake the US, but that China won't move ahead with the reforms necessary to sustain its growth and to address the very serious problems facing the nation," he said.

The secretary will visit China next week after attending the September 19-20 annual meetings of the International Monetary Fund and the World Bank in Singapore.

During his stay in China, Paulson said that he will urge the Chinese Government to move more quickly to adopt economic reforms, including a more flexible currency.

Paulson, 60, was nominated in May to replace John Snow, who resigned on June 29. The former Goldman Sachs CEO, who was sworn in on July 10, has made more than 70 trips to China as head of the investment giant.