Gutierrez said China's failure to open up its markets and curb counterfeiting to help make trade more balanced could jeopardize two-way trade worth US$250 billion (HK$1.95 trillion) a year and harm the global economy.

"There is a real protectionist and isolationist sentiment creeping up in our country," Gutierrez told US business executives in Beijing Wednesday. "An erosion of trade between our countries would have a negative impact on the US economy and have even greater consequences for progress in China."

ADVERTISEMENT

The surging US trade deficit with China, the world's third-largest exporter, has prompted lawmakers in Washington to propose curbs on Chinese imports.

The United States bought almost US$244 billion worth of goods from China last year, while it sold US$42 billion to the mainland. The US$202 billion deficit accounted for more than a quarter of the United States' overall trade gap and was the largest with any individual country.

"Think about what that would do to China's economy if China's number one customer all of a sudden decided to be protectionist," he said. "It would be devastating for China's economy and the impact on China's economy would hurt the whole world."

Companies such as Microsoft, the world's largest software maker, have said rampant piracy in China is causing them lost sales. Makers of auto parts, pharmaceuticals, computer software as well as music and movies say they are losing US$250 billion a year, and point to China as the main culprit.

Gutierrez said China's industrial policies, technical standards, government procurement policies and weak enforcement of intellectual property rights are blocking US companies' access to China's markets.

"If we sell US$55 billion to Japan, I don't think it's unrealistic to assume we can do that and more to China if we have market access, IPR protection and clarity in the laws," Gutierrez said.

China's abuse of intellectual property rights is a much greater threat to the competitiveness of US companies than the value of the yuan, said Stephen Green, senior economist with Standard Chartered Bank in Shanghai, who briefed visiting US senators Charles Schumer and Lindsey Graham on China's currency reforms last week.

The yuan "is a distraction," Green said. "The American administration should really focus their energies on helping China to improve enforcement of IPR abuses."

Schumer and Graham Tuesday delayed a vote on their legislation to levy tariffs on imports from China, citing progress in making the yuan more flexible.

At the same time, Senate Finance Committee chairman Charles Grassley and the committee's ranking Democrat Max Baucus proposed legislation that could cut off US government loan guarantees for exports and require the US Treasury to oppose lending from development banks.

Gutierrez said he had not seen the details of the proposed bill. "However, we believe that the way to address issues, to address any conflicts that we have with our trading partners is through negotiation."

Gutierrez Tuesday met with Vice Premier Wu Yi, responsible for intellectual property and lead negotiator with the United States on the issue. He also met Premier Wen Jiabao and Commerce Minister Bo Xilai.

"We believe they are serious about tackling the intellectual property rights problem, but clearly there is a long way to go," Gutierrez said.

BLOOMBERG