updated 10/23/2007 12:22:52 PM ET 2007-10-23T16:22:52

Treasury Secretary Henry Paulson said Tuesday that the recalls of tainted Chinese products were causing fear among U.S. consumers. He called on China to take bold moves to address that and other economic problems facing the two countries.

He said both countries needed to work together to address safety issues that have been raised about a host of Chinese products from tainted toothpaste to toys containing lead paint.

“Recent and repeated reports of tainted food and product imports are causing fear and uncertainty in American consumers and harming the ’Made in China’ brand here in the United States,” Paulson said in a speech to the George H.W. Bush China-U.S. Relations Conference.

He said China needs to move aggressively to refocus its economy, fight off protectionist forces and address the growing concerns about tainted Chinese imports.

Wang Chao, an assistant minister of foreign affairs for China, said that the Chinese government was paying great attention to the issues of export quality and safety.

“The Chinese government has carried out thorough investigations and rigorously penalized the offenders,” Wang said in remarks that followed Paulson’s address.

Paulson said the effectiveness with which China addresses the safety concerns will have long-term implications for U.S.-China trade relations. He cautioned that policymakers in both countries should focus on science-based safety decisions rather than “protectionism or retaliation.”

Last year, the administration began a new series of high-level talks with the Chinese aimed at addressing growing trade tensions between the two nations that have been triggered by America’s record trade deficits with China. U.S. manufacturers and many members of Congress blame those deficits on unfair trade practices by the Chinese such as keeping the value of China’s currency artificially low against the U.S. dollar to gain trade advantages.

Paulson said China should allow its currency to rise at a faster rate against the dollar, a change that he said would make it easier to implement other needed economic reforms in the country and to control rising Chinese inflation.

“Bold structural policies are needed to shift China’s growth away from heavy industry, high energy use and dependence on exports towards greater reliance on domestic demand, greater production of services and greater provision of material well-being to China’s population,” Paulson said.

Paulson said that the needed reforms in China were being resisted by “increasingly influential Chinese businesses.”

“In my judgment, the greatest risk to China’s long-term economic security is that protectionists prevail and Chinese reforms proceed too slowly,” Paulson said.

On Friday, Paulson succeeded in getting the backing of finance ministers from the Group of Seven major industrial countries to toughen its language urging China to move more quickly to let its currency appreciate.

Even with all the recalls of Chinese imports, the U.S. trade deficit with China is on a pace to exceed last year’s record. Members of Congress are pushing legislation that could impose economic sanctions on China unless the country moves faster with currency appreciation.

U.S. manufacturers contend that the yuan is undervalued by as much as 40 percent, making Chinese goods cheaper for U.S. consumers and American products more expensive in China.

Paulson said that the new Strategic Economic Dialogue with China, which will next meet in Beijing in December, was showing success in such areas as civil aviation, energy and financial services.

In response to a question about the future of the strategic dialogue, Paulson said he hoped that the next administration would continue the dialogue but that the key to that decision will be “demonstrating that it works.”

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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