(USAtoday)
Updated: 2007-12-14 13:48

http://www.usatoday.com/money/economy/trade/2007-12-13-china-talks_N.htm?csp=34

XIANGHE, China -- With modest gains but few breakthroughs, six US Cabinet officials head home this weekend from talks to smooth an often rocky economic relationship with increasingly important trade partner China.

The U.S.-China Strategic Economic Dialogue, co-chaired by Treasury Secretary Henry Paulson, held its third session in a mock-imperial resort an hour from Beijing on Wednesday and Thursday.

Vice Premier Wu Yi, Beijing's top negotiator, called this week's session "a complete success." Paulson described it as "instructive and constructive" and praised the retiring Wu as "an extraordinary representative of the Chinese people."

But behind the public handshakes, tough talking dominated. These discussions were "more candid, more spontaneous and more real" than the first two sessions last December and in May, said US Trade Representative Susan Schwab.

Despite worries over product safety, America's taste for cheap Chinese goods translated into a US trade deficit with China of $25.9 billion in October, a record single-month jump of 9.1%, according to US Commerce Department figures released Wednesday.

The ever-worsening US deficit, plus the fear that China is taking American jobs, has prompted several of the roughly 50 China-related trade bills introduced this year in Congress. Paulson said Thursday that both Washington and Beijing must fight "economic nationalism and protectionism," because "nations cannot protect their way to prosperity."

But Wu warned the US not to adopt punitive measures against China over trade disputes.

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

The true value of China's currency, the yuan, is among the hottest topics in China-US relations, but little progress was achieved this week in speeding the pace of appreciation. US industries believe Beijing maintains an artificially low value to keep Chinese exports cheap -- and cost US manufacturing jobs.

Switching to a market-determined currency will not be a cure-all for the imbalances in the China-US economic relationship, Paulson said Thursday. Yet the currency "is in many ways a proxy for reform," he said. While Paulson reiterated the US line that "there is a greater risk in moving too slowly" than too quickly, his counterparts gave no indication that significant currency appreciation is likely soon.

Agreements signed Tuesday in Beijing included new controls on food, feed, drugs and medical devices imported into the USA from China.