Shultz Attacks Protectionism, Presses Growth

Secretary of State George P. Shultz began Thursday to lay the groundwork for Administration policy positions at next month’s economic summit in Bonn by denouncing trade protectionism as “an illness,” not a remedy, and by calling on Japan and Western Europe to join the United States in an effort to sustain global economic growth.

In a speech at Princeton University’s Woodrow Wilson School of Public and International Affairs, Shultz conceded that the U.S. budget and trade deficits, the strong U.S. dollar and the huge influx of foreign capital that is making the United States a net debtor to the rest of the world are economic “imbalances” that eventually will imperil growth.

He insisted that “these problems are interrelated” aspects of a complicated and interdependent world economy and cannot be solved in Washington alone. “We, and other countries, share a responsibility to make some hard political choices,” he said.

Reduce Budget Deficit

Among those choices, Shultz said, should be an Administration commitment to reduce the U.S. budget deficit and resist protectionist moves against Japan and other sources of the U.S. trade deficit. But he rejected the view of France and other West European nations that the dollar can be brought more in line with other currencies through government intervention.

He conceded that, if current trends continue, the United States will incur a net debt of about $100 billion by the end of the year and that any sudden flight of foreign capital away from the United States would “force a decline in our investment and impair the long-term growth of the American economy” if the budget deficit is not reduced first.

But he insisted that the way to reduce the strong dollar that attracts much of that foreign capital is for European economies to get stronger and for Japan to open its own markets to outside investment, not for the dollar to be forced down artificially.

Chiefly Analysis

Shultz’s speech, the text of which was made available in Washington, seemed more an analysis of a complex global economic situation than a policy statement. Nevertheless, it did contain a program of policies that President Reagan will probably urge on other heads of government at Bonn on May 1 and 2. It called for:

- The United States to “substantially reduce its federal spending and deficit.” In keeping with Administration policy, Shultz rejected the possibility of a tax increase to reduce the deficit.

- Concerted action by Western Europe to eliminate labor market rigidities, “reduce the obstacles to change and innovation” and adopt policies that “attract capital and that stimulate domestic investment.”

- Action by Japan to open its markets to foreign goods and open its capital markets to foreign and domestic investment. In line with the Administration’s cautious response to the recent anti-Japan trade votes in Congress, Shultz noted that more open trade policies in Japan would, by themselves, do little to reduce the $123-billion U.S. trade deficit, and he argued that freer investment opportunities in Japan would be more effective.

- Renewed international support for freer trade and agreement for a new round of negotiations under the General Agreement on Tariffs and Trade next year aimed at reducing non-tariff trade barriers. The Reagan Administration urged a new round of such discussions at the London summit last June and it intends to press even harder at Bonn.

“We should not delude ourselves into thinking that a lowering of foreign barriers will have a decisive or even substantial impact on the trade deficit,” Shultz said, pledging that the Administration will oppose moves in Congress toward import surcharges on Japanese and European products. “Protectionism is not the remedy to an illness. It is, itself, an illness.”

- Continued stabilization of economies of Third World debtor countries through policies of growth, trade and reduced government interference in the market. Shultz said the debtor nations should look to foreign and domestic investment, not more loans from abroad, as their main sources of capital.

Only after such an international program is successfully launched, he said, is the dollar likely to be brought more in line with other currencies through the operation of the market, not government intervention.