Treasury Secretary W. Michael Blumenthal told a press conference yesterday that "there is little chance" that the U.S. trade deficit in 1978 can be reduced in any significant way from the $25 to $30 billion range he forecast earlier this week for 1977.
That means that the current account deficit - which reflects offsetting U.S. earnings on investments abroad - again will run about $16 to $20 billion, he said.
A Morgan Guaranty Bank analysis published this week estimated that the current account deficit actually would increase from $18 billion his year to $20 billion next year with, "at best," a modest improvement in 1979. On the other hand, a confidential assessment by the International Monetary Fund staff shows a $3 billion reduction in the annual rate in the first half of 1978.
But whether the 1978 U.S. international deficit is as big, or slightly smaller than 1977's, the principal fact to emerge this week is that the red ink is not a temporary phenomenon. Some officials at the annual joint meeting of the World Bank and IMF, which will conclude here today, have expressed fear that deficits of this magnitude would bring selling pressure against the dolar.
But Blumenthal said he did not anticipate any depreciation in the dollar. "We would like to see the dollar strong," he said after the press conference. "We have been encouraged by the fact that it has remained strong in spite of a substantial deficit.
"In other words, the deficit has been financed by capital inflows, and we would hope that continues."
Blumenthal said that the U.S. is engaging in an "intensive exercise" to examine every measure that can be taken to reduce the trade and current account imbalances, "looking to 1979 and beyond," he mentioned the possibility of expanding Export-Import Bank financing, and export promotion through the Commerce Department, in addition to a hoped for reduction in energy use.
He also broadly intimated that if a study concludes that the special tax deferment involved in Domestic International Sales corps, helps to stimulate exports, he will recomend that it not be abandoned as part of the proposed revisions. Such a recommendation reportedly already has been forwarded to the White House by Commerce Secretary Juanita Kreps.
Meanwhile, both President Carter and Blumenthal expressed concern about the problems currently being encountered by te steel industry, which spokesmen for some companies, attributed to foreign competition.
At his news conference, Carter announced creation of a special task force headed by Treasury Under Secretary Anthony Solomon to check into the problems of the ailing steel industry. But the President expressed a degree of skepticism that the industry's basic troubles are import-releated. He cited, for example, a weakening in the pattern of economic growth here and abroad that reduces orders for steel.
"I wouldn't be willing to lay all the blame on imports," he said. Carter also referred to the fact that some U.S. steel plants are "older" than those abrad, and said some companies are having problems relating to environmental standards "which I would not change."
The President said the Solomon committee would check into possible retraining where large layoffs have occurred. Blumenthal also said the administration was examining proposals to see how adjustment assistance could be beefed up and how to help industries to become more competitive.
Earlier this week, the Labor Department certified adjustment assistance payments which could run up to $208 a week for 5,000 Youngstown, Ohio. steel workers on the ground that import competition was an important factor in their loss of jobs.
Blumenthal reiterated his criticism of the large projected Japanese trade and current account surpluses for this year, and said that "unless that situation is corrected and corrected as quickly as possible, the protectionist pressures in many other countries - incuding our own - will become very large, and I would say justifiably so."
Japanese Vice Minister of Finance Michiya Matsukawa, asked about Blumenthal's comment, said he hoped Blumenthal would have "the wisdom and foresight not to rush to protectionism." He urged a "larger perspective" that looked beyond the next year or two.
Matsukawa told a press conference of his own that the Japanese export picture has been distorted because of inflation and the appreciation of the Japanese yen by 9 per cent since the beginning of this year. Thus, he claimed, the actual volume of exports in the second quarter was up only 3 per cent compared to 20 per cent when priced in American dollars.
He repeated, as he did in an interview yesterday in the Washington Post, a request for understanding of Japan's special problems in increasing its imporst. And he predicted that the present surplus "will be diminising remarkably" over time.
In related international economic matters:
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