U.S. Trade Deficit Will Improve in ‘87--Baker
Countering a resurgent drive in Congress to dictate the nation’s trade policy, Treasury Secretary James A. Baker III told the Senate on Tuesday that current Administration policies and the steep fall of the dollar will cause the huge U.S. trade deficit to bottom out this year and bring improvement in 1987.
Baker, insisting that the dollar’s decline since last September against Japanese and West German currencies has been orderly and not a “free fall,” disclosed that he discussed yen-dollar “stability” with his Japanese counterpart at last week’s economic summit in Tokyo--a strong hint that the Administration believes the dollar has fallen enough.
At the same time, the secretary dismissed fears that the Japanese, whose massive investment in the U.S. economy has helped offset the federal budget deficit, will be driven by the falling dollar to invest their money elsewhere.
Baker predicted that the U.S. trade deficit with Japan will decline next year and that the overall trade deficit, even though it is now running at a higher level than in 1985, will not exceed 1985’s levels by year-end. And in 1987, he predicted, the deficit “should fall.”
‘Somewhat Concerned’
“We don’t have a target value for the dollar,” Baker said, declining to confirm published reports that the Japanese want the yen set at 180 to the dollar--less valuable than its current postwar high of about 165. (When the yen’s value is high, it makes Japanese products less attractive overseas, hurting Japan’s export-oriented economy.)
However, in reference to reported bond and stock market nervousness over the dollar falling too far too fast, he said: “I am somewhat concerned by the interpretation the market attaches to this. In Tokyo, we discussed the need for stability in exchange rates and for growth in the Japanese economy.”
Referring to an omnibus trade bill presented to subcommittees of the Senate Finance and Banking committees by Sen. John Danforth (R-Mo.), a leading advocate of retaliation against trading partners with persistent surpluses, Baker warned that retaliation “will not eliminate the trade deficit and may actually make it worse.” He added: “We must avoid passage of protectionist trade legislation that would alienate our trading partners (and) encourage them to enact similar protectionist policies and undermine the Administration’s international economic policy.”
Baker, noting that the bill calls on the Administration to take steps to bring down the value of the dollar and coordinate economic policies with other Western trading nations, said the Administration is now doing just that--at least since last September’s initiatives to work with industrial nations to bring down the dollar, to move against unfair trade practices by foreign trading nations and to ease the Latin American debt crisis.
Some Sections Out of Date
The Tokyo summit “went beyond” the key dollar exchange agreement reached last September in New York by the United States, Japan, Britain, West Germany and France because a more comprehensive mechanism for policy coordination among the main industrial countries is now evolving, Baker said. Accordingly, he said, sections of the Danforth bill calling for management of exchange rates and international policy coordination “point in the right direction, but they are now out of date in light of the agreement reached at the Tokyo summit.”
In the House, meanwhile, virtually the whole Democratic leadership staged a televised news conference to launch a parallel omnibus trade bill that calls for policies on exchange rates and international coordination similar to that which the Administration has put into effect.
But the House bill, approved by the Ways and Means Committee two weeks ago, also contains a section added by Rep. Richard A. Gephardt (D-Mo.) that would mandate import quotas against nations carrying large trade surpluses against the United States unless they reduce those surpluses by 10% a year.
White House spokesman Larry Speakes said President Reagan will oppose the measure as a drive “to redistribute a shrinking pie rather than stimulate new growth.”
