Paulson warns lawmakers on China trade bills

By David Lawder

BILLINGS, Montana (Reuters) - U.S. Treasury Secretary Henry Paulson warned on Tuesday it was a mistake for U.S. lawmakers to blame American job losses on global competition and use it as an excuse for passing protectionist trade laws aimed at China.

But a key senator rebuffed his advice that the United States should stick with a strategy of negotiation and dialogue to persuade Beijing to let its yuan currency strengthen, saying a firmer hand was needed.

"China needs, at the very least, a nudge," Senate Finance Committee Chairman Max Baucus told reporters at a jobs forum in Billings, Montana.

Baucus said Congress would pass currency legislation to allow duties against goods from countries with "fundamentally misaligned" currencies regardless of any progress that Paulson makes in negotiating with Beijing.

"No country out of the goodness of its heart ever lowers a trade barrier, ever," Baucus said, saying that the Senate Finance Committee's bill would help Beijing more quickly "do what it knows it should do" by letting open markets set the value of its currency.

Baucus, a Montana Democrat, and many other lawmakers believe that China deliberately undervalues its currency to make Chinese goods cheaper in U.S. consumer markets, hurting American competitors.

Paulson, who completed a four-day trip to China late last week, joined Baucus in his home state to discuss the importance of open markets and free trade to encourage competition -- an area where the two agree.

To illustrate their common ground, Baucus and Paulson visited the MRL Equipment Co. factory in Billings, which produces spray equipment used to stripe roads. The company hopes to increase exports to countries like China that are building new highway networks.

Baucus and Paulson acknowledged, however, that while they share a goal of a more flexible yuan, they disagree on the best way to achieve it.

"I feel quite strongly that the right way to deal with a sovereign nation like China on a currency issue is through negotiation," Paulson said.

PROTECTIONIST WORRIES

Paulson also decried what he called an increasing trend of protectionist sentiment in the United States and elsewhere.

"This increase in protectionism is a worrying trend," the Treasury secretary said in remarks to the jobs forum at Montana State University-Billings.

He said a rapidly changing economy would lead to some job losses and dislocations, but that can in turn open the way for more job creation in other sectors.

"But making trade a scapegoat and enacting protectionist legislation would make us worse off," Paulson said.