Paulson wants 'strong dollar' to be weaker against Chinese yuan

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From Reuters
Saturday, April 21, 2007

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid...

WASHINGTON -- U.S. Treasury Secretary Henry Paulson said on Friday he is "a big believer in a strong dollar" but reiterated that China's yuan currency needs to appreciate more against the greenback.

In a transcript of an interview with Public Broadcasting Service business commentator Charlie Rose airing on Friday night, Paulson said a strong dollar was good for the United States.

"As I think you know, I believe very strongly that a strong dollar is in our nation's interest, and I'm a big believer in currencies being set in a competitive, open marketplace," Paulson said.

He said the dollar's value is set in a competitive marketplace based on underlying U.S. economic fundamentals. But he added that China needs to allow more appreciation and flexibility in the yuan's value in the short term as it moves "to a point in the intermediate term when the currency can be set in a competitive marketplace."

"It's a bit of an unnatural act to be as integrated as they are, as I said in terms of goods and services, and not be there yet with the currency," Paulson said.

Paulson's strong dollar comments echo a message that other participants in a meeting of Group of Seven finance chiefs said he had delivered when they met a week ago in Washington.

European Central Bank President Jean-Claude Trichet also on Friday commented on the U.S. strong dollar policy in Berlin at a meeting of euro zone finance ministers.

"My last remark -- We have noted with interest that the secretary of treasury and the U.S. authorities have said a strong dollar is in the interest of the U.S. economy," Trichet said.

Asked if his concern about the dollar exchange rate had increased in the last week, Trichet said, "It is not a new line."

Paulson said U.S. congressional anger that is being directed at China because of persistent trade deficits was likely to lead to "unattractive bills that are voted on in Congress" and Beijing should take that into account.

"I think the Chinese are very well aware of it," he said. "I think they should be aware of it."

One proposal that already has some support would define currency "misalignment" as a subsidy under U.S. countervailing duty laws and open the way to tariff action. It is aimed primarily at China, though it potentially could be used against others as well.

In addition, the United States has filed a pair of cases against China at the World Trade Organization for movie, music, and software piracy violations and market access barriers that it says keep legitimate U.S. copyrighted products out.

Paulson said he saw some reason for concern that support for free trade was not as strong in the United States as in the past.

"What is surprising to me a bit is that the consensus among economists, think tanks, leaders of the House (of Representatives) and Senate ... is beginning to erode and I think I need to do a better job of just making it clear how much our standard of living benefits ... from trade," he said.

Paulson said "any move to isolationism, economic isolationism, is going to mean fewer jobs, lower wage increases, a lower standard of living in our country long-term."

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