By Andrzej Zwaniecki
Washington File Staff Writer

Washington - U.S. 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.

Speaking January 5, Snow acknowledged that some Chinese trade and economic policies and practices have continued to create problems for U.S. 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," Snow said at the U.S. Chamber of Commerce, a powerful business lobbying group based in Washington.

But it is important to resist protectionist pressures and carefully manage the relationship with China in order to make it mutually beneficial, he said.

"I am very 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," Snow said.

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 moving through Congress would impose additional tariffs on Chinese imports unless Beijing relaxes its currency exchange regime.  Proponents of these measures say that, even after some adjustments in this regime in July, the Chinese currency, the yuan, remains undervalued, making Chinese products more competitive compared to goods made in the United States and other countries where currencies better reflect market forces.

Earlier in the day, Snow urged China to relax its currency exchange mechanism further.  He suggested 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 administration has consistently resisted calls from Congress and some business leaders to name China a currency manipulator and impose on it related sanctions.

A day earlier, U.S. Chamber of Commerce 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 group also will conduct other campaigns in China and other countries where IP problems are most severe.

For additional background information, see The United States and China.