The US has called on China to step up economic reforms at high-level talks between the two countries.
Mr Paulson warned the US-China trade gap was becoming a concern
US Treasury Secretary Henry Paulson urged China to address "persistent trade and financial imbalances" as the discussions kicked off in Washington.
US firms have accused China of keeping the yuan low to boost exports, thus threatening American jobs.
But China's vice premier Wu Yi warned the US against a temptation to "blame the other side for domestic problems".
Mr Paulson told delegates that the US was "not afraid" of competition from China, but that the US was concerned about the "pace" of policy change in the country.
However, Ms Wu did warn that "politicising trade and economic issues is absolutely unacceptable" and would "complicate the situation".
"We're willing to take effective measures together with the US side to address bilateral trade imbalances," she added.
"These measures include increasing imports from the United States by China."
There is increasing anxiety in the US over the growing trade deficit with China, which last year surged to a record $233bn (£118bn).
These fears have prompted members US Congress to press for action against China, with critics claiming the price of the yuan is kept artificially low, giving China's industry an unfair competitive advantage.
Some US Congressmen say the yuan should be revalued by up to 40%.
Since the Chinese government allowed a limited float of the yuan last year, it has gone up by about 5% against the US dollar.
Last week, the People's Bank of China increased the amount that the yuan can appreciate each day from 0.3% to 0.5%.
While that was a useful gesture of goodwill ahead of the talks, many currency traders say that because the central bank sets the rate at which the currency starts each day it will make little practical difference.
China has also been accused of failing to protect the patents and copyright of American companies on goods such as computer programmes and DVDs.
The US has also made a recent complaint to the World Trade Organisation about Chinese government subsidies.
But many economists say that these factors have a relatively small impact on the trade imbalance.
They say the deficit in US international trade is due to the fact that American consumers save very little - they buy large amounts of imported goods while consumers in China and other Asian countries save a great deal.
Many also say the deficit in the American government's finances contributes to the trade imbalance.