Nakasone Predicts Drop in U.S. Trade Deficit

WASHINGTON — Japanese Prime Minister Yasuhiro Nakasone, winding up two days of talks with President Reagan that were dominated by trade issues, said Monday that the $50-billion U.S. trade deficit with Japan could begin to decline as early as this fall.

During his talks here and Sunday at the presidential retreat at Camp David, Md., Nakasone promised Reagan that his government would take steps immediately to begin to implement its “epoch-making” plan to redirect Japan’s economic structure toward domestic growth and consumption and away from savings and exports.

The reform program is expressly aimed at shifting Japan’s once-closed economy from its export-oriented past to an import-oriented future and reduce that nation’s huge trade surpluses with the rest of the world. Nakasone characterized the program as “the kind of shift that occurs once in a century” and similar to “climbing Mt. Everest, only it’s higher.”

Reagan, closing the talks in a Rose Garden farewell ceremony, hailed the program and announced that he is naming Secretary of State George P. Shultz and Treasury Secretary James A. Baker III to head a high-level committee that will meet with Japanese counterparts “to discuss structural economic issues of mutual concern,” which undoubtedly will be addressed during next month’s economic summit in Tokyo. He also reassured Nakasone that “protectionism is not the answer” to close the U.S. trade deficit.

The reform plan was announced with much public fanfare in Tokyo a week ago, and Nakasone has publicly committed his government to taking steps to implement parts of it immediately. Other parts, requiring changes in tax laws to shift incentives from savings to consumption and thereby reverse a deeply ingrained Japanese national habit, would require legislative action by the Parliament and, probably, years of political debate.

Nevertheless, Nakasone repeatedly emphasized during his visit here that he is determined to see through implementation of the reform plan, or Maekawa Report, named after Haruo Maekawa, the former head of the Japanese central bank who led the study commission that produced it.

Nakasone told a group of about two dozen skeptical senators and representatives during a lunch meeting at the Japanese Embassy on Monday that carrying through the reforms “is a matter of Japanese survival in the international community,” according to Japanese officials who attended.

“It is impossible for Japan alone to remain an island of solitary prosperity, amassing imbalances of the present order,” Nakasone told the group in prepared remarks. “The Maekawa Report is, therefore, a timely, appropriate and valuable contribution to our policy reorientation. Now, the buck is squarely in the hands of the government.”

Earlier Monday, Nakasone told reporters that, thanks in part to the resurgent value of the yen against the dollar since last September and to the global collapse in oil prices that began last winter, Japan’s trade surplus with the United States is already leveling off when measured in yen. “That trend should be tangible by this fall,” he said.

Responding to questions, Nakasone cautioned that the U.S. trade gap with Japan may widen in the interim.

Nakasone said he expects that the economic expansion program disclosed April 8 would increase Japan’s economic growth by an additional 0.7% in gross national product this year--another potential boost for import sales.

He said imports from export-conscious Taiwan and South Korea, whose currencies are linked to the dollar’s relative 35% decline against the yen, “are swarming into Japan, and the affected industries are already raising their cries.”

The United States and Japan have stressed the gradual progress being made in a series of bilateral trade negotiations over the past year--progress that other officials, such as Clayton Yeutter, the hard-charging U.S. trade representative, have described as hard-fought at best and generally frustrating.

The Administration claims to have won greater access for U.S. products to the Japanese market in pharmaceuticals and medical supplies, telecommunications equipment, some electronic products and some agricultural commodities. Negotiations are under way to resolve a rancorous dispute over U.S. industry claims that Japan is dumping semiconductors in the U.S. market.