Two leading international economists told Congress yesterday that economic strains between the United States and Japan are growing more critical, and can be lessened only by significant policy changes by both countries.
C. Fred Bergsten, director of the Institute for International Economics, said that increasing frictions and tensions between the United States and Japan stem less from individual trade problems than from major fluctuations in the exchange rates between the Japanese yen and the dollar.
He told a House Foreign Affairs subcommittee that the United States and Japan are heading for a collision unless Japan takes step to revalue the yen by 25 percent.
He said the yen, which now trades at about 250 to the dollar (1,000 yen equals $4), should be strengthened to at least 200 to the dollar (1,000 yen equals $5).
Bergsten said that action on the yen "is the only step" that might avoid a "disastrous" response from the United States to the Japanese trade surplus in the form of an import surcharge.
Lawrence B. Krause, a Brookings Institution expert on Asian economic affairs, agreed that the yen has been weak.
He didn't specify a desirable yen-dollar rate, but said that "given its great size in the world economy, Japan must be sensitive to the impact of its macro policy on other countries."
Krause said that Japan now presents a negative image to the world, and "is seen as a selfish member of the world community," because it provides little foreign aid to poor countries and is reluctant to transfer industrial technology.
But Krause said that the United States must quit "bullying Japan," and instead should seek Japanese counsel and give Japan's views on political and security problems more weight.
Krause's main theme was that there are two problems with the international trading system: the huge American imbalance with the rest of the world and "the relatively closed market of Japan." Although there is an overlap, Krause said, the problems are distinct.
The U.S. global imbalance, he argued, stems from its huge budget deficit, which he said should be trimmed $50 billion a year for the next several years to induce an orderly decline of the dollar.
The way to deal with Japan's closed market that troubles all of its trading partners, Krause said, is through a new round of negotiations under the aegis of the General Agreement on Tariffs and Trade. Krause suggested that a special working group be formed within the GATT negotiations to deal with the Japanese import problem.
Bergsten laid more stress on the yen-dollar exchange rate problem, which he said is "much worse than generally realized."
The Japanese trade surplus would be higher by "perhaps tens of billions of dollars" if it were not for the so-called voluntary restraints Japan maintains on many exports to both the United States and Europe, he said.
Bergsten said that his report reflected the views of prominent Japanese economists, among others, at a meeting in Japan two weeks ago of a U.S.-Japan consultative group on international monetary affairs that he chairs. The group is sponsored by the U.S.-Japan Foundation.
Like Krause, he called on the United States to reduce the budget deficit, adding that "some tax increases" would be needed.
Bergsten's recommended yen-boosting steps include tax-cuts "and other supply-side measures" including Reagan-style investment tax credits and accelerated depreciation measures, designed to increase the profitability of yen investments.
On the trade side, Bergsten called on Japan to made a "down payment" on the future results of a new multilateral trade round by unilaterally cutting tariffs by 25 percent and to offer to eliminate all tariffs in the course of the negotiations.