Secretary of State George P. Shultz is taking an increasing role in the management of Reagan administration economic policy, which he says he feels can be separated no longer from the formulation of more traditional foreign policy, given the increasing financial strains in the world.
In an interview yesterday, Shultz, newest member of the Cabinet, made clear he has assumed a major role in synthesizing economic judgments with more traditional foreign policy, drawing on his own expertise as a professional economist.
Other administration officials noted that Shultz is regularly attending meetings of the administration's top policy-making economic council, the "troika" headed by Treasury Secretary Donald T. Regan.
In the interview, Shultz -- a former secretary of the treasury, secretary of labor and budget director in the Nixon administration--said that from the heavily integrated economies of the major nations has evolved what he called a world financial market, in which the United States is the predominant force.
Yet, he said, the United States must pay attention increasingly to the impact of the world economy here, not only to the impact of the United States on others, as has been true until now.
Among current international economic issues that have an important bearing on American foreign policy, he cited the U.S. sanctions against European companies filling equipment orders for the Soviet gas pipeline. He said he was negotiating with European allies for a more satisfactory and comprehensive agreement on East-West strategy that would eliminate the tensions triggered by the sanctions.
The sanctions, put in place on order of President Reagan on June 18, 1982, have largely been ignored by European companies, even though the companies are threatened by a ban on future commerce with the United States.
Other international economic issues that bear importantly on foreign policy, Shultz said, include trade disputes -- notably with Japan on a range of imported goods, and with Canada on its investment policy. He repeatedly warned against resort to protectionist measures. He also mentioned the huge problem of debt overhanging several developing countries, such as Mexico, warning that a dose of austerity in the borrowing countries cannot be avoided.
Shultz said that, at the direction of the president, he is attempting to work out a new approach to the knotty pipeline question -- one that will in effect be a substitute for the sanctions, defusing the bitter feelings that have developed in Europe.
He said he was surprised to find on taking office that the United States and its allies in Europe had never worked out a basic East-West trade strategy, something akin to military strategy.
In the wake of the dispute over pipeline sanctions, Shultz said that the most important thing now is to get unity among the allies, based on a set of principles. If a broad strategy can be evolved, he said, then the pipeline issue can be left for the United States to decide on its own merits.
He left the impression that, if the Europeans agreed to go along with American concerns about the extension of large and subsidized credits to the Soviet, then the United States would on its own lift the sanctions.
In response to a question whether he had urged a shift from the sanctions because they were worsening the European economy, he would say only that almost every economy today has its miseries, and no one wants to add to them.
But he noted that the Europeans were also learning that Reagan was very firm on the pipeline issue, and that although he is a very nice and likable man, he can also be decisive, a tough guy who can stay with things.
Shultz has also involved himself in efforts to solve critical trade issues with Japan. For example, he attended a meeting on Thursday at the White House, called by trade ambassador William E. Brock, to discuss the complaint of American businessmen that the collapsing Japanese yen is giving Japan an extra competitive advantage -- not only here, but in head-to-head competition with American companies in third markets, such as Latin America.
The secretary said that although the yen might appear to be undervalued in terms of trade, it is hard to find evidence that the market is wrong, or that the market is distorting the value. All of the intervention by the Japanese has run the other way -- that is, to prop it up, he points out.
He believes that the yen is weak and the dollar is strong not because U.S. interest rates have been high, but because the stability of the American economy is attracting a great deal of capital investment. The fundamental thing, he says, is that this country looks like a better place to have your money.
He said he warned his friend, former West German chancellor Helmut Schmidt, when he complained last January about high American interest rates, that he was wrong. He told Schmidt that interest rates would come down, and the dollar would stay up there.
Yet, he says that American businessmen are not unreasonable in seeking to have something done about the yen. But the question is, what can be done? He admits that he doesn't have a solution, nor has he seen one evolve either in the private sector or in the government. In essence, he says he believes that a better job has to be done in framing the problem, and that, conceptually, we are not quite there.
On the international debt problem, he said it was clear that the International Monetary Fund will have to prescribe a big dose of austerity to those borrowing countries that overextended themselves.
But the longer-run solution of the international debt problem, he said, will depend on a real expansion of the world economy. There, he adds, one sees a potential paradox: if every country follows an austerity pattern, there can be no expansion. The hope he holds out is that the American economy appears to be poised for a good expansion that in turn may help restore world economic vigor.