Dec. 12 (Bloomberg) -- Treasury Secretary Henry Paulson elevated the safety of imported goods to the top of his agenda in Beijing as he tries to convince Americans of the benefits of trade with China.

Paulson opened the third session of his twice-a-year Strategic Economic Dialogue today with Vice Premier Wu Yi. Ensuring China's product safety is the priority, a shift from the first two gatherings, when the pace of China's exchange-rate gains was the main focus.

The Treasury chief is changing tack on concern that U.S. consumers' anger at Chinese exports of toxic pet food, contaminated vitamins and fatal baby cribs will stoke protectionism, endangering trade with the world's fastest- growing major economy. He may also find the issue easier to sell to China than pressure for a stronger yuan, increasing the chance of success at the talks, analysts said.

``Food safety resonates more with the average American,'' said Gary Hufbauer, an economist at the Peterson Institute for International Economics in Washington who used to work on trade issues at the Treasury. ``It's something where there is actually a mutual interest in cooperating to come up with solutions.''

Paulson leads a delegation that includes U.S. Trade Representative Susan Schwab, Commerce Secretary Carlos Gutierrez, Health and Human Services Secretary Mike Leavitt, acting Agriculture Secretary Chuck Conner and Environmental Protection Agency head Stephen Johnson.

Product Confidence

China is willing to buy more U.S. products to cut its record $149.2 billion of trade surplus against the U.S., Wu said. Chinese and U.S. commerce officials yesterday agreed to study the possibility of selling China more U.S. technology goods that have both civilian and military uses.

``I hope the U.S. can reset their mindset over this issue and relax controls over exports of dual-use technology,'' Wu said today. ``China doesn't go out of its way to seek large trade surpluses.''

Paulson, who traveled to China about 70 times during his career at Goldman Sachs Group Inc., set up the dialogue with China to manage what he called ``tension'' in the economic relationship. So far, the forum has failed to secure the yuan gains sought by the Bush administration.

`Yuan Must Gain'

China must let the yuan appreciate, given ``mounting inflation, growing asset bubbles and possible overheating,'' Paulson said today. ``A more flexible exchange rate policy is especially important to China now, given these risks. The pace of the yuan's appreciation remains one of the key levels to deal with China's internal and external imbalances.''

The yuan rose 0.1 percent today to 7.3729 per dollar as of 11:27 a.m. in Shanghai, the highest since China ended its fixed exchange rate against the U.S. dollar in 2005.

China controls the yuan by buying dollars and other currencies, and has amassed a record $1.4 trillion of reserves. Paulson said in a speech last week that this year's advance in the yuan wasn't ``fast enough.''

The yuan has strengthen 5.6 percent this year against the U.S. dollar, a pace that ``fits China's national economic needs,'' China's acting trade minister Chen Deming said today.

Wu, Paulson's counterpart, will retire next year as vice premier, when China's political leadership will be consumed by ensuring the Summer Olympics in Beijing in August are held without incident. In the U.S., the November presidential and congressional elections will drive the political agenda.

Challenge for Paulson

``It's going to be very hard for Paulson to get anything done in a politically expedient timetable and everyone's attention is going to be wildly divergent next year,'' said Charles Freeman, a former China official at the U.S. Trade Representative's office, and now a fellow at the Center for Strategic and International Studies in Washington.

Product safety may have more resonance with Chinese leaders, which have described quicker yuan gains as a threat to domestic producers, analysts said. Chinese leaders are also interested in high standards to strengthen the reputation of Chinese-made goods.

`Tangible Results'

``Chinese and American citizens must have confidence in the goods they buy,'' Paulson said. ``Another example of our growing interdependence is the challenge of ensuring food and product safety.''

Both countries want to avoid harming bilateral trade in goods and services that climbed 14 percent in the first 10 months of 2007 from $343 billion a year before.

American lawmakers have demanded stricter enforcement at U.S. ports after tainted Chinese goods reached consumers. Mattel Inc., the world's largest toymaker, Williams Sonoma Inc.'s Pottery Barn Kids unit, Colgate-Palmolive Co. and other companies have pulled products from U.S. shelves this year because of contaminated or dangerous items made in China.

China and the U.S. yesterday signed two agreements on food and drug safety aimed at monitoring items and detecting tainted products. Under both agreements, Chinese manufacturers selling to the U.S. will be required to register with China's quality inspection bureau. The U.S. will also post health agents to China, Leavitt said.

``I would characterize the agreements as strong,'' Leavitt said yesterday after visiting an assembly line of China's largest juice maker. ``Together, they would guarantee quality and safety of products Americans use every day.''

Record Surplus

Legislators have also pushed the administration to toughen its stance toward China on exchange rates. U.S. politicians and manufacturers contend China keeps the currency artificially low to boost exports. The country is set for a record trade surplus with the U.S. this year after a $232.5 billion surplus in 2006.

The Senate Finance Committee approved legislation in July that would force the Treasury to overhaul its monitoring of exchange rates. It also would allow U.S. companies to appeal for higher anti-dumping duties.

Failure by Paulson to get concessions will probably revive the issue when legislators reconvene in January, said Idaho Senator Charles Grassley, the top Republican on the Finance Committee.

``He's not getting the results I'd like,'' Grassley said in an interview. ``There's been too much pussy-footing around. Basically, this is his last chance.''

To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net

Last Updated: December 12, 2007 00:43 EST