"Threatening China with protectionist measures to gain an advantage for special interests in the US would harm US consumers, fan the flames of nationalism, and destroy global wealth," he said.

Paulson recognizes the danger of both trade and financial protectionism, and the benefits of liberalization, he added.

Dorn said both the United States and China should adhere to the World Trade Organization rules as the preferred approach to greater transparency and mutually beneficial trade, and avoid destructive protectionism.

"In this regard, the US should recognize China as a market economy rather than label China a non-market economy, which discriminates against China in anti-dumping cases," he said.

In his article "The Debt Threat: A Risk to US-China Relations?" recently published in the Brown Journal of World Affairs, Dorn said, "Many in Congress find it easier to bash China than to face the reality that the growth in US government spending and borrowing, not the trade deficit with China, is the key reason for concern."

When asked to give more details about this, Dorn said the large US current account deficit is explained by the twin deficits – that is, the financial deficit in which US domestic investment exceeds domestic saving, and the fiscal deficit, in which federal spending exceeds revenues (taxes).

"Narrowly focusing on the yuan-dollar exchange rate diverts attention from the fact that when the US is spending more than its income, the only way to finance that imbalance is to borrow or sell off assets," he said.

In particular, the US government must live within its means – not by increasing taxes but by reducing the size and scope of government.

When the federal government borrows for the sake of consumption rather than productive investment, the burden of excessive spending falls on future taxpayers – regardless of whether the deficit is financed by foreigners or domestically, Dorn said.

About energy security and environmental sustainability, one of the important issues Paulson said the upcoming SED will cover, Dorn said "energy security is best ensured by keeping global markets open and avoiding price and profit controls."

He said regulations that restrict exploration and development of new energy sources should be subject to careful cost-benefit analysis, and privatization should be promoted.

When market prices increase, substitutes for high-cost energy will naturally be developed – if entrepreneurs can capture a profit, he said.

Environmental protection is in the interest of all countries, but developing countries cannot afford the same standards as rich countries, said Dorn.

"Thus, rich countries should not try to impose their standards on China or on other developing nations," he said.

The best policy is to encourage growth in emerging markets so that as wealth increases so will the demand for a cleaner and safer environment, he said.

(Xinhua News Agency June 16, 2008)