Baker Backs Decline in the Dollar : Says U.S. Isn’t Worried About Drops if They’re Moderate

Secretary of the Treasury James A. Baker III on Friday endorsed the recent decline in the U.S. dollar and said the Reagan Administration is “not worried” about further drops in the currency as long as the fall is “moderate and not precipitous.”

The comments, made during a breakfast interview with reporters and editors of The Times’ Washington Bureau, appear to put the Administration somewhat at odds with Federal Reserve Chairman Paul A. Volcker.

In congressional testimony earlier this week, Volcker said the Federal Reserve has no intention of pushing the dollar lower through monetary policy, noting that a sharp decline could lead to higher inflation and interest rates unless Congress agrees on a major deficit reduction package.

‘Don’t Have a Target’

Baker, who refused to say whether the United States had intervened in currency markets to spur the decline, stopped short of calling for the dollar to fall a specific amount. “We don’t have a target,” he said, dismissing as unlikely the danger of a steep drop.

Earlier this week, however, Commerce Secretary Malcolm Baldrige said he hoped the dollar would fall 20% to 25% from its current level over the next 12 to 18 months.

In contrast with Volcker, Administration officials seem most concerned about seeing the dollar continue its decline in hopes that a lower value for the U.S. currency would reduce the nation’s massive trade deficit and stem a rising tide of protectionist legislation on Capitol Hill.

A weaker dollar would make American products more competitive in world markets by lowering the cost to foreigners buying U.S. goods and agricultural products while making it more difficult for other nations to flood the United States with cheap imports.

More Restive

With the trade deficit expected to hit a record $150 billion this year, politicians in both parties have been growing increasingly restive at the White House’s commitment to maintaining a general free-trade position.

This week, for example, three Democratic congressmen, including Chairman Dan Rostenkowski of the House Ways and Means Committee, introduced a bill that could impose a 25% tariff on goods from Japan, Brazil, South Korea and Taiwan--nations that run large trade surpluses with the United States.

But Baker insisted that the Administration would oppose any such bill, saying it “would increase costs to American consumers. . . . It’s going to trigger retaliation.” Calling the Democratic proposal “a bad bill,” Baker also warned that any attack on Brazil’s exports could endanger the security of U.S. bank loans to that nation.

Tax Overhaul Plan

Baker said he is not worried that a battle over trade issues would derail the Administration’s tax overhaul proposal, which also must go through Rostenkowski’s committee.

“There’s been no indication on the chairman’s part that he is going to put (the tariff bill) up front ahead of tax reform,” Baker said. “I would be very surprised if that were the case.”

Baker, acknowledging that there “have been some criticisms of the (tax reform) proposal, some of which may prove to be valid,” nonetheless argued that the basic plan is still on schedule to win approval in Congress this year.

Saying “it is clear that there will be changes during the course of the legislative process,” Baker pointed out that President Reagan’s “commitment to tax reform is total, it is absolute, it is complete, and it is unwavering, and it’s not going to change.”

Against Tax Hike

He insisted that the White House would continue to oppose any proposal for higher taxes, rejecting a suggestion by some Democratic senators that top Administration officials, including Baker and Vice President George Bush, had indicated that they might accept an oil-import fee.

On other issues, Baker:

--Rejected suggestions that the Administration had backed away from its commitment to Senate Republicans on freezing cost-of-living increases for Social Security beneficiaries, saying that the White House agreed to abandon the provision only because it seemed necessary to get a budget reduction agreement with the House.

--Acknowledged that the Treasury is prepared to accept the restoration of 887 positions in the U.S. Customs Service that the Administration had proposed to eliminate, but he said he is unsure whether that would mean additional enforcement officers for the undermanned Los Angeles region.