U.S. Trade Representative William E. Brock yesterday warmly endorsed the suggestion of Zentaro Kosaka, a key Japanese official, that American companies be allowed to borrow more freely in the Japanese financial markets at well below prevailing American interest rates.
"That would be a tremendous improvement" in U.S.-Japanese relations, Brock told a breakfast meeting, noting that Japan now allows only one American company to borrow in the Japanese markets "per quarter."
He predicted that if American companies get "equal opportunity" to participate in Japanese capital markets, it would lead to a strengthening of the Japanese yen, with a consequent reduction in the current Japanese trade surplus with the United States.
In a brief telephone interview yesterday, Kosaka agreed with Brock that a borrowing program for American companies in Japanese markets would act to strengthen the yen vis- a-vis the dollar.
Brock also said it is a mistake to lay the blame for the large U.S. trade deficit with Japan entirely on that country. "The fundamental problem is a failure on our part to be competitive," he said.
"A lot of our businessmen read in the papers that the Japanese markets are closed, and they decide not even to try to sell, even though the markets may be open for their products."
He added that American business and labor "have benefitted from import competition" because the pressures created by foreign goods have helped stimulate greater efficiency and quality of product here.
Asked what a "realistic" rate for the yen would be, Brock responded that he would like to see the yen strengthen to 180 to 200 to the dollar, compared with the present rate of 245 yen to the dollar. Many trade experts, here and in Japan, conclude that much of the trade imbalance between the two countries can be traced to a cheap yen, which gives Japanese goods an extra competitive edge in world markets.
In turn, the cheap yen is blamed on the contradictory fiscal-monetary policy mixes of the United States and Japan: here, fiscal policy is loose and monetary policy tight, while the reverse is true in Japan.
But neither country appears ready to make a sharp U-turn in economic policy, although both are under pressure to make at least moderate changes.
Brock predicted that legislative prospects for so-called trade "reciprocity" legislation designed to improve American companies' access to Japanese and other foreign markets are "pretty good as long as they let me define 'reciprocity.' "
If not properly handled, Brock said that "reciprocity" could turn into protectionism of a particularly virile kind.
But if legislation is carefully drafted, Brock believes it would "strengthen our hand" in multilateral trade negotiations. The critical point, he said, is that any legislation must avoid a result in which the United States reacts to perceived unfair treatment "by erecting barriers of our own."
On a related issue, Brock said that Europe's economic problems "go far beyond high interest rates." Largely, he said, the European economies are troubled by structural problems: "They have so subsidized their industries and over-taxed their populations that they don't have the capacity to move into new areas." He said that this will be a major topic for discussion at the economic summit to be held in Paris in June.
Kosaka, an influential leader in the ruling Liberal Democratic Party, had told the Japan Society in New York on Monday that trade tensions between his country and the United States might be defused if the Japanese private sector provided funds to "revitalize" American industry.
A variation of a proposal made earlier by Kay Sugahara, a Japanese-American businessman, the Kosaka plan envisions "flotation of bonds" at interest rates running about 10 percentage points below prevailing American interest rates. Kosaka did not say how large a total such bonds might reach, although he implied it would be on a meaningful scale.