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Protectionism Threatens Increasingly Interdependent US, Chinese Economies

A U.S. trade official says the American and Chinese economies are increasingly interdependent, but are threatened by protectionist politicians. Ambassador Alan Holmer of the U.S. Treasury Department urged China to raise the value of its currency, and take steps to lessen American concerns about the safety of Chinese exports. Daniel Schearf reports from Beijing.

Alan Holmer is the U.S. Treasury Department's special envoy for economic talks with China. He said Wednesday that the U.S. and China were entering a new phase of closer and more prosperous economic relations. But with increased trade, he says, comes more tension.

China for years has been posting a large and growing trade surplus with the U.S. Last year, Washington reported it at over $230 billion. China has also accumulated more than a trillion dollars in foreign currency reserves.

Many politicians and economists say these surpluses are fueled by China's undervalued currency, the yuan. They say if the surpluses are not reduced significantly, it could lead to instability in the global financial markets.

Holmer says there is a danger, however, that Beijing will not act quickly enough to deal with the imbalances created by its economic growth.

"Without strong policy adjustments, China's economic growth path becomes unsustainable, as Chinese top leaders have publicly stated," he said.

Chinese experts attending the speech also stressed how intertwined the two economies now were, and said whatever affects one economy will surely affect the other.

Hu Angang, the director of Tsinghua University's China Study Center, said whereas in the past they were enemies, the U.S. and China were now in the same boat.

Hu says in 1969, China's slogan was 'oppose American imperialism, oppose Soviet revisionism.' But, these days, he says the U.S. and Russia have benefited the most from trade with China.

Holmer urged the leaders of both countries to ignore rising protectionist sentiment from politicians and businessmen, and instead allow market forces to play their full role.

He says China has become a major source of foreign aid to poor countries, and this has led to both new opportunities and new responsibilities for Beijing.

"We also strongly support a greater voting share for China in the IMF and the World Bank," he said. "Increased participation will allow China to advance its interests in those institutions, but it is also important that Beijing recognize the responsibilities of greater participation."

Holmer was speaking at the school of Public Policy and Management at Beijing's prestigious Tsinghua University, a month before the annual U.S.-China Strategic Economic Dialogue is due to take place here in the Chinese capital.

Aside from the trade gap, China's currency, and ongoing concerns about intellectual property rights violations, the talks this year will focus on concerns about product safety.

Holmer said a series of unsafe food and consumer products imported from China have harmed the "made in China" brand in the United States.

He said how China handles product safety issues would have long-term implications for the U.S.-China relationship, and for China's economic growth.