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Snow Treads Lightly on Trade Issues

The Treasury secretary discusses two recent controversies, concerning China and U.S. ports.

SANTA CLARA, Calif. -- If Treasury Secretary John Snow is any indication, the Bush administration is trying to walk some fine lines on foreign trade.

In the cases of both the trade deficit with China and the recent brouhaha over a deal that would put several U.S. ports under the management of a United Arab Emirates-based company, Snow appeared to be trying to address the concerns of domestic critics without appearing altogether protectionist.

"One of the strengths of America is our commitment to open markets," Snow said, following a meeting here with TechNet, a high- tech industry lobbying group. Referring specifically to the scrutiny being given to the ports deal, he added, "It's awfully important that we come out in the right way on this matter."

On China, Snow praised the country for taking "important steps" toward permitting more "flexibility" in the exchange rate between the country's yuan currency and the dollar, but said it needs to go further.

Snow acknowledged that China has full authority to decide how the yuan should be valued and that the country can't move to allowing the yuan to freely float against the dollar "immediately." But he urged the country to carry through on its commitment to allow the yuan to trade more freely against the dollar.

"Our belief is that it's in China's best interests" to do so, he said.

With the U.S. trade deficit with China soaring, some critics of the administration's policies have engaged in a round of China-bashing. In the Senate, there have been recent calls to suspend normal trade relations with China. And critics of the U.S. relationship with China helped submarine Chinese oil company CNOOC's proposed purchase of


last year.

Instead of joining that chorus, the administration has tried to address the issue largely through pressuring China on the yuan valuation -- the thinking being that the yuan is trading at an artificially low level vs. the dollar.

If the dollar weakens against the yuan, imports from China may become less attractive, because they would be relatively more expensive in dollar terms, while U.S. exports may be more attractive.

However, the administration line toward China could get tougher in coming months. The Treasury Department is studying whether the country is manipulating the currency markets. Snow said a report should be finished in "early spring," but declined to preview its contents.

"I don't want to speculate on

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the report's findings," Snow said. "It's still in progress."

On the ports issue, Snow asserted that the real problem with the deal was not one of security but one of communication. Dubai Ports World recently agreed to purchase Great Britain-based Peninsular & Oriental Steam Navigation, a company that operates ports in six U.S. states, including New York and New Jersey.

Congressional critics have raised questions about the level of scrutiny the deal received and about whether it makes sense to have the management of crucial ports in the hands of a company based in a country through which al Qaeda had funneled money.

On the flip side, some advocates of international trade have worried about how the furor is being received by U.S. trade partners and allies.

According to published reports, President Bush did not know about the deal until critics raised questions about it, but Snow said the deal had been "fully vetted" by the executive branch and that it had "no national security issues."

Where the administration went wrong was in how it explained the deal itself to Congress and the American people and the review process it went through, he said.

"The executive branch needs to explain the process better," Snow said.

Snow was visiting Silicon Valley to talk about education and competitiveness with representatives of the high-tech industry. He toured a community college Thursday morning at which


(CSCO) - Get Cisco Systems, Inc. Report

sponsors a program teaching networking. His meeting with TechNet was on the campus of

National Semiconductor


and addressed the administration's initiatives to encourage basic science and technology research.