Treasury Secretary James A. Baker III told the U.S. Chamber of Commerce yesterday that, at next month's economic summit, the United States will pressure Japan and West Germany to boost their economies to help cut the huge American trade deficit.
He said dollar declines of 24 percent against the German mark and 30 percent against the Japanese yen since last September have improved the competitive outlook for U.S. companies, but he added that exchange rate changes can't do the job alone.
Baker did not specify the demands that would be put on Japan and West Germany to achieve "more balanced growth with the United States and each other."
But in two presummit briefings at the White House yesterday, a senior administration official called on West Germany to join in the latest international round of interest rate cuts, speed up planned tax reductions and liberalize its capital markets.
He noted that West Germany refused to lower interest rates after the United States and Japan cut theirs last week, even though "they have negative inflation" and a 9 percent unemployment rate.
Regarding Japan, the official said: "It could take steps to stimulate domestic demand. It could open up its markets. It could move on tax reform, or at least on tax reduction.
"They've got a top marginal rate of 70 percent," the official continued. "They've got some savings incentives in their law that are spectacular in terms of exempting from taxation any money that you put in the bank.
"Consequently, they are a big, big savings country with very low consumption," he added.
The official's specific demands for German and Japanese action to stimulate growth -- and the differing views here and in Tokyo on whether the yen has risen enough -- seemed to set the stage for a sharp behind-the-scenes debate at the summit on these key issues.
The German government has indicated strong resistance to new expansionary moves. And Japan, despite the negative impact on its economy of the sharply higher yen, has resisted stimulative steps that would worsen its budget deficit.
The official, confirming reports in the Japanese press, said that government officials in Tokyo have complained to the Reagan administration about the rapid appreciation of the yen, which has soared to record post-World War II highs. The complaints have come "because it is finally beginning to bite, and they are experiencing what we had been experiencing with a high dollar over four years," he said.
But he turned aside questions on whether the Group of Five countries -- the United States, Japan, West Germany, France and Britain -- would intervene to slow down the rise of the yen; Prime Minister Yasuhiro Nakasone has indicated he may ask them to do so at the summit session. This would reverse the process started in September, when the G-5 agreed to intervene to boost the value of the yen and other nondollar currencies.
Speaking at the chamber's International Forum, Baker said in response to a question that "we don't have a target for the dollar." Baker said that whenever officials even "hint" where they think the dollar should go in the foreign exchange markets, the result is "wild gyrations" in currency markets, which are open 24 hours a day on a global basis.
He referred to the decline of the dollar since the G-5 meeting last September as "generally orderly" -- an implied rebuff to Japanese authorities who recently have characterized the dollar slide against the yen as "disorderly."
Baker said that one of the goals for the summit would be "to develop arrangements to foster the closer coordination of economic and monetary policies," leading to greater exchange-rate stability.
But he went out of his way to stress that this would not lead to a decision by the summit to call a new international monetary conference. A report on the feasibility of such a conference that the president had asked him to make, he pointed out, is not due until the end of the year.
Other officials, speaking on background, said the effort at the summit would focus on finding a mechanism to improve the existing flexible exchange rate system. They they have no specific proposals in mind at the moment, but have not ruled out putting forward "something, if we thought we could make some progress," one official said.
Baker painted a generally optimistic picture of the global economic outlook that will provide the backdrop for the Tokyo discussions. He singled out the sharp drop in oil prices as a plus for rich and poor nations alike.