Ahead of the second round of China-US Strategic Economic Dialogue, US Treasury Secretary Henry Paulson has said it will take more than a stronger Chinese currency to reduce the record trade deficit between the US and China. Speaking at a forum of top economists, scholars and government officials in Washington on Thursday, he said his main focus is on persuading China to reduce its reliance on exports and increase the role of domestic demand. Known for her toughness Chinese Vice Premier Wu Yi is scheduled to meet with important Congressional panels during her visit to Washington this month for the ‘strategic economic dialogue’ launched by the two countries in December last year. However, the secretary conceded that even if the yuan rises against the dollar, America’s trade deficit with China will improve slowly. China is expected to meet head-on with the US Congress on the contentious issue of Chinese undervalued currency, which American lawmakers complain is hurting the US economy. The Bush administration and Capitol Hill believe that China’s currency is deliberately undervalued against the US dollar which resulted in widening trade gap. Paulson has said that there is a need of flexible currency in the short term and need to get to a point where the currency is market- determined. However, according to reports it can be concluded that Chinese government is seriously considering straightening up its currency but it is certainly not looking for a quick-fix solution, as it has already made its intention very clear that it would move towards market driven flexibility at a gradual speed. In the meanwhile, it is reported that the yuan has risen more than 5 percent in the last 18 months. Paulson, since coming to hold the post, has sought to neutralize focus on the currency, arguing that the causes of the US trade gap with China are more complex than the Chinese government’s efforts to restrain the yuan’s value. The US economy has reported a $232.5 billion deficit with the country last year. While expressing hopes for the forthcoming strategic economic dialogue with Chine Paulson said, ‘Now I happen to think it is a big positive that the Chinese would be here when Congress is in full session because they will have an opportunity – Wu Yi is a very persuasive woman and she is a force of nature – to go up and behind closed doors and talk with some of the key committees and leaders out there.’ The hard pressed treasury secretary however refrained to make any predictions that China would accelerate its pace of currency reform that US manufacturers see as crucial for slender the huge US trade deficit with China. In an endeavor to exhibit that prevailing US laws can deal with China, Bush administration has recently filed two trade cases against China with the World Trade Organization and for the first time slapped penalty tariffs on Chinese paper products in a dispute over alleged government subsidies. These steps are definitely disturbing for Beijing which has already warned the US that it could have serious implications on the trade ties of both the nations. Some US lawmakers have alleged that China has undervalued its yuan by up to 40 percent in order to boost its exports and cited this as a crucial factor for the growing bilateral US trade deficit. At the same time, lawmakers are contemplating a bipartisan legislation against China over the currency dispute. They have said that the legislation will be well-crafted, WTO-compliant and difficult for Bush to veto. Over the next few weeks, lawmakers plan to consider a bipartisan legislation against China over the currency dispute. They say the legislation will be well-crafted, WTO-compliant and difficult for Bush to veto. Another bill in the last Republican-dominated Congress aimed at punishing China with a tariff if it did not adjust its currency unexpectedly gained two-thirds support in the Senate in a mere procedural vote. Following these developments, Paulson does not seem to be confident enough to gain some mileage from the upcoming strategic dialogue as Washington’s ‘stick and carrot’ policy with China does not seem to be working at present. Henry Paulson has further said, ‘We are focused on long-term goals while simultaneously looking for short-term results’. While defending the strategic dialogue he said that he would look for short-term achievements as ‘signposts along the way’ that the new high-level talks are working.