Speech

Department of the^REASURY 'WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE At NOON, E.D.T. October 16, 1980 REMARKS BY THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE JAPAN SOCIETY OCTOBER 16, 1980 It is an honor to appear before the Japan Society, a group devoted to promoting closer ties and greater understanding be­ tween two of the world's major economic powers. The United States places great value on its close and warm relationship with Japan. Despite differences in our history and culture, our nations share basic goals and ideals: dedication to political democracy, commit­ ment to an open, liberal world economy and belief in fair economic competition. Relations between the United States and Japan are on a firm foundation, nurtured by increasingly close and frequent consultations between our two governments. American and Japanese leaders meet frequently on a bilateral basis at cabinet and subcabinet levels. We consult and cooperate jointly in such multilateral fora as the economic summits, the OECD, and the IMF and World Bank. Private groups such as the Japan Society and the Wisemen's Group also play an impor­ tant role in strengthening the relationship. The past decade has brought vast changes in the world economic environment and in the circumstances of both of our countries. Problems, at times exceedingly difficult, have inevitably arisen between us as we have tried to cope with these changes. Important issues remain to be resolved today. But too often overlooked is the fact that our close consultative ties have permitted mutually satisfactory resolution of bilateral issues on the one hand, and M-708 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 » a common, cooperative response to the problems of the world economy onthe other. Tt be Particularly important that we maintain and build on those ties in the future, anticipating and resolving issues before they become damaging to the overall relationship. We both have an enormous stake in managing effectively and •cooperatively the problems facing us. Untii relatively recently, Americans took for granted the availability of cheap, abundant energy resources. Our industry has long predicated its growth on that assumption. Soaring energy prices have brought an end to that era, however, and have forced American industry to begin to adapt to a drastically altered economic climate. In years past, the United States also tended to view its economic role in the world from a one-way perspective: our economic policies and performance affected others, but our own economy was relatively insulated from external developments. That situation, too, has changed. The share of exports in U.S. GNP today is double what it was a decade ago. One of every three acres of U.S. farmland and one of every seven U.S. manufacturing jobs produce for export. Imports are thoroughly integrated into U.S. consumption and production patterns. The international activities of U.S. firms today account for nearly one—third of U.S. corporate profits. For Japan, dependence on the external sector is not new. Imports have long met the bulk of its energy needs, and Japan has made energy conservation a way of life. Sharply higher oil prices have, of course, affected Japan. But the major change in Japan s situation has resulted from its spectacular economic performance. During the last fifteen years, Japan’s share of total output of the OECD area has risen 250 percent, and its economy now accounts for 15 percent of the OECD total. Japan's dramatic emergence as a global economic force relied heavily on trade to provide both the raw materials necessary for industrial expansion and the export markets to pay for those imports. Today, however, the general slowdown in the world economy, attributable in large part to the oil shocks of the past seven years, poses dangers for this economic lifeline. High unemployment and weak growth in the economies of Japan's trading partners test the ability of governments in those countries to maintain fully open markets. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 . . Tkese4-uhan?e?1 ln each of our national Situations come at a time when the challenges confronting the world economy as a whole are as serious as any of the post-war period. The two oil dHcp CidekSlafaAhei1h7?'S haVS CeSulted in hi9h rates °f inflation world­ wide, large global payments imbalances and massive international toaekhor9anHed^Ck J?Pan and the United States have worked closely together and with others in designing a comprehensive, cooperative that ?»t,nn«heSS ^obal econotnic problems. The main elements of tnat response are these: Top priority in economic policy to fighting in­ flation and reducing dependence on imported oil. Support for the IMF and World Bank to play a larger, more active role in the "recycling” process — in financing and promoting the correction of payments imbalances. Resistance to protectionist pressures, efforts to develop alternative energy sources and implementation of policies to increase productivity and restore the basis for sustained, non-inflationary growth. 2 . Important progress is being made in fulfilling this blue­ print for action. First, we have implemented most of the agreements negotiated during the Tokyo Round of Multilateral ?e?°^at^On?: *his constitutes a major step toward more liberal trade in the face of strong protectionist pressures. Japan s contribution to the successful conclusion of the MTN is to be applauded. Japan agreed to reduce its tariffs on utiable manufactured imports by about 40 percent, signed all of the codes on nontariff barriers, and made unilateral tariff reductions on a number of products of interest to the United ln^ludin9 automobiles. However, more needs to be done, particularly on the question of Nippon Telephone and Telegraph Corporation s procurement of high technology telecommunications equipment. I will touch on that issue shortly. Significant progress is also being recorded in the energy area. For the industrial countries as a group, the volume of oil imports was lower in the first half of 1980 than at any time since Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 - 1973. In fact, imports were 2.9 million barrels per day less than in 1973 -- a reduction of 11 percent. Japan has made impressive gams, reducing oil imports so far this year by about 5 percent in the face of stronger economic growth than in many other countries, U.S. oil import volume has been declining since 1977, the peak year. u.S. oil imports so far this year are about 25 percent oelow the rate of 1977. Our oil consumption this year is running about 8 percent below the level of 1979, continuing a trend begun in 1978. Some of this, of course, is attributable to reduced economic activity. But it is primarily the result of improved efficiency in the energy area. The ratio of energy to output in the United States is now about 10 percent below the 1973 ratio. Further progress is needed, but the trend is clear and strong. Fulfilling a third requirement of the global response, the IMF and World Bank have recently initiated a range of measures to meet the large and complex financing and adjustment needs of their member countries. The Fund is greatly expanding members' access to its resources. Countries will now be able to obtain up to 200 percent of quota per year, or 600 percent of quota over a three year period —— six times what would have been available only a few years ago. IMF adjustment programs will span a number of years rather than the one-year period normal in the past, in recognition of the difficult structural problems faced by many IMF borrowers. The Fund will focus more heavily on policies to stimulate investment and productivity, complementing its traditional emphasis on demand management. And the Fund is planning to establish an interest subsidy account to help ease the financing burden on its low income borrowers. These efforts by the IMF are closely paralleled by a major initiative being undertaken by the World Bank to promote structural adjustment in developing nations. With strong support from the United States and Japan, the Bank has begun a new program of medium-term lending, conditioned on recipients' adoption of economic policies designed to assist structural adjustment. The required economic programs, which will be coordinated closely with the IMF, will focus on the supply side, partly in response to the energy situation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 The Bank has moved importantly into the energy area. Existinq plans for lending to support increased energy production and development cail for approximately $14 billion in new loans by 1985. The Bank is actively searching for additional ways to further energy development in borrowing countries, including the possibility of an energy facility or affiliate, which would consolidate and enhance Bank activities in this field. Increased energy conservation and development, an expanded e for the IMF and World Bank, and implementation of the MTN agreements are all critically important steps in dealing with the difficult problems facing the world economy. Equally important, however, will be continued close cooperation among such major economic powers as the United States and Japan in attacking the mutual problems of inflation, slow growth, and protectionism. We have learned that policies to control inflation, stimulate growth, and maintain open markets must be designed and implemented m a coordinated, cooperative way, if they are to be effective. Through continuing consultations, the United States and Japan have defused problems potentially damaging to our bilateral relations and to the world economy — notably, problems of destabi­ lizing payments imbalances and of trade flows and market access. T e United States recognizes and appreciates Japan’s constructive actions m pursuit of agreements reached in these consultations. Japan has sustained a. healthy growth rate relative to other OECD countries, despite inflationary pressures and a growing current account deficit. This strong domestic performance in Japan has provided welcome strength and stability to world economic activity. The performance of Japan's external sector has also made a welcome contribution to international economic stability. In a period of large OPEC surpluses — and in light of the quite large surpluses in Japan's own current accounts in earlier years — Jd§a2 ? acceptance of a swing into deficit has been approoriate and helpful in easing the positions of weaker countries. Moreover strong Japanese economic growth, coupled with a significant reduc-' tion m tariff and nontariff barriers, has provided improved market access for developing countries, enabling them to finance a larger portion of their deficits through export earnings. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 The U.S. current account has also moved in a direction that to the stability of the system. From a deficit of $13.-r oillion in 1978 , the U.S. current account has shifted to approximate balance in 1979 and 1980. A small surplus is likely next year. Given the role of the dollar in the world payments system and the instability associated with earlier U.S. deficits ^rK1?tiVely strong U.S. current account position plays an important stabilizing role. These developments in the U.S. and Japanese external positions demonstrate not only our ability to work together to maintain stability in the monetary system, but also the capability of the system itself to foster adjustment of destabilizing imbalances. The positive developments to which I have referred should not blind us to the fact that important problems remain to be resolved We must not bury our heads in the sand and allow these problems to grow to proportions that damage the relationship we have worked so hard to build. For example, when bilateral trade problems are an issue, the bilateral trade balance becomes an important factor shaping public attitudes toward those problems. It is difficult to shrug off the fact that the United States has continued to run a persistent, multi-'billion dollar trade deficit with Japan «•— nearly $9 billion last year — even though overall U.S. and Japanese current account figures have moved toward a pattern more consistent with global stability. We need to take further action to prevent these figures from becoming a political lightning rod. More generally, we must find constructive approaches to the remaining problems between us. Let me make some suggestions on actions we can take. For its part, the United States must continue to fight inflation; reduce energy imports; restore the ability of its industries to compete in world, as well as domestic, markets; and maintain firm resistance to protectionist pressures. These prescriptions are often noted by Japan in our consultations. We agree, and we believe we have much to learn from Japan in carrying out this effort. The generally cooperative and positive relationship among Japanese business, labor and government is frequently cited as one important factor in Japan's successful and dramatic economic growth. The time has come for greater cooperation among these groups in the United States. President Carter's new economic revita~ lization program takes an important step in that direction. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 7 - A new advisory body -*• the President's Economic Revitalization Board, comprised of representatives of business, labor and the public — will advise the President on a wide range of economic policy matters relating to economic revitalization. It also will be charged with planning an industrial development authority to provide financial assistance for regions hard hit by economic dislocation. The President's revitalization program contains proposals aimed at stimulating private capital investment and improving labor productivity. Liberalized depreciation allowances, a refundable investment tax credit and reduced employer payroll taxes are among the measures proposed. The reduction of individual tax burdens «« in ways that do not rekindle inflation also is an important part of the President's program. We recognize that this is only a first step, and that consistent, long-term efforts will be required to bring inflation fully under control, to restore a dynamic and productive industrial sector in the face of new energy realities, and to reduce further our dependence on imported energy supplies. We are committed to making that effort. During this process of adjustment, however, the United States will continue to be subject to the strains of economic dislocation. In periods of slow economic growth, high unemployment and dislocation, protectionist pressures inevitably mount. The Carter Administration has strongly resisted general import restrictions, recognizing fully such action would only delay the necessary process of adjustment by American industry and increase inflationary pressures in the U.S. economy. The U.S. Government can, through such measures as tax incentives, adjustment assistance and retraining programs for workers, encourage the movement of resources into more productive sectors of our economy. Yet a successful adjustment to changing economic conditions cannot be achieved solely by actions taken domestically. U.S. firms in industries that are competitive internationally must be given the same competitive opportunities in foreign markets that foreign producers enjoy in the U.S. market. Japan has an important role to play in this regard, and Japan's own actions can help strengthen resistance to protectionist pressures in the United States and other important Japanese export markets. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 8 - While Japan has taken significant steps during the Multilateral Trade Negotiations in opening its markets to foreign goods, continued visible movement in that direction is needed. There must be a perception of ongoing Japanese willingness to offer reciprocal competitive market opportunities. That perception, in the case of the United States, is particularly important in those product areas in which the United States is most competitive. Tele­ communications equipment is one of those areas. Access by U.S. firms to Nippon Telephone and Telegraph Corpora­ tion's procurement of communications equipment has been an issue of contention in our bilateral relationship for several years. The issue has attained particular significance as a symbol of a closed Japanese economy, due to the delay in reaching agreement on high technology items important to continued U.S. competitiveness in international trade. The successful resolution of this issue will be possible if Japan agrees to apply full Government Procurement Code obligations to all NTT purchases. A similar case involves access to the Japanese market for U.S. cigarettes, cigars, and other tobacco products. That market, like the market for telecommunications equipment, is controlled by a government monopoly. Competitive oppor­ tunities for foreign producers in these markets can, and must be, substantially improved. A much more difficult area of trade access involves structural aspects of Japan's economy. Certain features of Japan's industrial structure and distribution system make it difficult for new entrants to sell in the Japanese market. There is no simple or easy means of eliminating these invisible, and in many cases inadvertent, barriers to entry. But until it is truly as easy to sell in Japan as in the United States, there will be a lingering impression that trade with Japan is not reciprocal. And as long as that impression persists, Japanese exports will be particularly vulnerable to protectionist demands. Japan's exports should, of course, continue to reap the benefits of trade that their quality and attractiveness have earned. At the same time, Japan must recognize that its exports may cause adjustment difficulties for importing nations. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 - The U.S. automobile industry provides one highly visible example of the economic impact of today's energy realities, and of the difficult problems that can arise in adjusting successfully. U.S. automakers have begun a transition to production of small, fuel-efficient autos, which will be able to compete effectively with Japanese products. We welcome recent Japanese Government statements indicating its sensitivity to the short-term adjust­ ment needs of the U.S. auto industry. But this issue should not be viewed from a short-term perspective alone. For the longer term, Japanese auto companies and the Japanese Government can take several actions which would be a constructive response to the competitive imbalance in our two markets. Japanese auto firms could increase the purchase of U.S. auto parts, for use not only in autos exported to the United States but in autos sold on Japan's domestic market as well. They could also increase the U.S. value added in their finished autos by establishing automobile production facilities in the United States. We understand the Japanese Government is encouraging the auto companies to take such steps. The Government could also help by ensuring that there are no barriers to the sale of U.S. automobiles in Japan. We believe actions such as these would serve U.S. and Japanese interests alike. Steel is another U.S. industry that will require time to adjust to changes in the world economic climate. The recently reinstated trigger price mechanism will allow this industry to undertake needed restructuring measures, which should result in its increased com­ petitiveness on domestic and world markets. This program should help prevent future trade problems in the steel industry. On another, closely-related, front, we continue to seek Japanese support for reform of the International Arrangement on Export Credits, to reduce the subsidy element in export credit practices. Japanese and U.S. exports have been affected by the subsidy practices of other major trading countries, especially those that have increased the use of mixed credits — mixing aid and official export credits, rte have been working with Japan and others to strengthen the internationa agreement by bringing its terms closer to current market condi­ tions. Instead of joining a costly subsidy race, or continuing to suffer from unfair competition, Japan and the United States both should give strong support to effective international discipline over such practices. This is another area where Japanese and U.S. interests fit hand in glove, and where our joint efforts could sway the outcome of international debate. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 10 I Trade is not the only area in which increased Japanese leader­ ship would be welcome. It is also important that Japan play a role in international political and defense matters commensurate with its economic power. Japan has already taken important steps in that direction. We appreciate Japan's increasingly vigorous foreign policy role in such turbulent areas as Southeast Asia, the recent increase in Japan's official development assistance, and the special exception granted by the Government for a 9.7 percent increase in the defense budget. We trust that these will not be one-time efforts. Japan should continue to expand its lending for development purposes. Japan also should strive for steady and significant increases in defense spending and continued improvement in its force capabilities. Such measures will enable the United States and Japan to work together more effectively to meet our mutual security needs. It is characteristic of ongoing relationships that no matter how far we have come, we are always only part-way home. Continued close cooperation between Japan and the United States is especially important at this difficult time for the world economy. Successful management of bilateral economic problems, and cooperation in addressing the many serious challenges confronting us on the multilateral level, will make an important contribution to the health and stability of the world economy and to our own economies. The health of a relationship depends not only on resolving problems but also on anticipating, spotlighting and resolving them at an early stage, before they become highly politicized. Private sector groups, such as the Japan Society and the Wisemen's Group, can make a particularly important contribution to the process of anticipating problems and working to avoid them. Groups such as yours approach issues from a less*-pressured perspective than governments, and can be of great help in developing constructive, anticipatory approaches to potential problems. We appreciate your role in maintaining and strengthening the sound relationship between the United States and Japan. Our countries have made important progress, both in building institutions and in dealing with the substantive issues in our economic relations. There is a large reservoir of good will to draw on as we seek to further the process of cooperation and accommodation. I can assure you that the United States will continue to uphold its side of the bargain. I am confident that Japan will continue to do as well. oOo Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DepartmentoftheTREASURY * WASHINGTON, D.C. 20220 TELEPHONE 566-2041 FOR RELEASE At NOON, E.D.T. October 16, 1980 REMARKS BY THE HONORABLE G. WILLIAM MILLER SECRETARY OF THE TREASURY BEFORE THE JAPAN SOCIETY OCTOBER 16, 1980 It *-s an honor to appear before the Japan Society, a group evoted to promoting closer ties and greater understanding be- tween two of the world's major economic powers. The United States places great value on its close and warm relationship with Japan, espite differences in our history and culture, our nations share oasic goals and ideals: dedication to political democracy, commit­ ment to an open, liberal world economy and belief in fair economic competition. Relations between the United States and Japan are on a firm foundation, nurtured by increasingly close and frequent consultations between our two governments. American and Japanese leaders meet frequently on a bilateral basis at cabinet and subcabinet levels. We consult and cooperate jointly in such multilateral fora as the economic summits, the OECD, and the IMF and World Bank. Private groups such as the Japan Society and the Wisemen’s Group also play an impor­ tant role m strengthening the relationship. The past decade has brought vast changes in the world economic environment and in the circumstances of both o f our countries. Problems, at times exceedingly difficult, have inevitably arisen between us as we have tried to cope with these changes. Important issues remain to be resolved today. But too o ften overlooked is the fact that our close consultative ties have permitted mutually satisfactory resolution of bilateral issues on the one hand, and M-708 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 a common, cooperative response to the problems of the world economy °n the other. It will be particularly important that we maintain and build on those ties in the future, anticipating and resolving issues before they become damaging to the overall relationship. We both have an enormous stake in managing effectively and cooperatively the problems facing us. Until relatively recently, Americans took for granted the availability of cheap, abundant energy resources. Our industry has long predicated its growth on that assumption. Soaring energy prices have brought an end to that era, however, and have forced American industry to begin to adapt to a drastically altered economic climate. In years past, the United States also tended to view its economic role in the world from a one-way perspective: our economic policies and performance affected others, but our own economy was relatively insulated from external developments. That situation, too, has changed. The share of exports in U.S. GNP today is double what it was a decade ago. One of every three acres of U.S. farmland and one of every seven U.S. manufacturing jobs produce for export. Imports are thoroughly integrated into U.S. consumption and production patterns. The international activities of U.S. firms today account for nearly one-third of U.S. corporate profits. For Japan, dependence on the external sector is not new. Imports have long met the bulk of its energy needs, and Japan has made energy conservation a way of life. Sharply higher oil prices have, of course, affected Japan. But the major change in Japan's situation has resulted from its spectacular economic performance. During the last fifteen years, Japan's share of total output of the OECD area has risen 250 percent, and its economy now accounts for 15 percent of the OECD total. Japan's dramatic emergence as a global economic force relied heavily on trade to provide both the raw materials necessary for industrial expansion and the export markets to pay for those imports. Today, however, the general slowdown in the world economy, attributable in large part to the oil shocks of the past seven years, poses dangers for this economic lifeline. High unemployment and weak growth in the economies of Japan's trading partners test the ability of governments in those countries to maintain fully open markets. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 These changes in each of our national situations come at a time when the challenges confronting the world economy as a whole are as serious as any of the post-war period. The two oil price shocks of the 1970’s have resulted in high rates of inflation world wide, large global payments imbalances and massive international financing needs. Japan and the United States have worked closely together and with others in designing a comprehensive, cooperative response to these global economic problems. The main elements of that response are these: — Top priority in economic policy to fighting in­ flation and reducing dependence on imported oil. — Support for the IMF and World Bank to play a larger, more active role in the "recycling" process — in financing and promoting the correction of payments imbalances. Resistance to protectionist pressures, efforts to develop alternative energy sources and implementation of policies to increase productivity and restore the basis for sustained, non-inflationary growth. Important progress is being made in fulfilling this blue­ print for action. First, we have implemented most of the agreements negotiated during the Tokyo Round of Multilateral Trade Negotiations. This constitutes a major step toward more liberal trade in the face of strong protectionist pressures. Japan’s contribution to the successful conclusion of the MTN is to be applauded. Japan agreed to reduce its tariffs on dutiable manufactured imports by about 40 percent, signed all of the codes on nontariff barriers, and made unilateral tariff reductions on a number of products of interest to the United States, including automobiles. However, more needs to be done, particularly on the question of Nippon Telephone and Telegraph Corporation's procurement of high technology telecommunications equipment. I will touch on that issue shortly. Significant progress is also being recorded in the energy area. For the industrial countries as a group, the volume of oil imports was lower in the first half of 1980 than at any time since Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 1973. In fact, imports were 2.9 million barrels per day less than in.1973 -- a.reduction of 11 percent. Japan has made impressive gain?? racing oil imports so far this year by about 5 percent in the face of stronger economic growth than in many other countries u.S. oil import volume has been declining since 1977, the peak year. U.S. oil imports so far this year are about 25 percent below the rate of 1977. Our oil consumption this year is running ?n°?Q-7« pe^cent ^low the level of 1979, continuing a trend begun in 1978. Some of this, of course, is attributable to reduced economic activity. But it is primarily the result of improved efficiency in the energy area. The ratio of energy to output in the United States is now about 10 percent below the 1973 ratio. Further progress is needed, but the trend is clear and strong. Fulfilling a third requirement of the global response, the IMF and World Bank have recently initiated a range of measures to meet the large and complex financing and adjustment needs of their member countries. The Fund is greatly expanding members' access to its resources. Countries will now be able to obtain up to 200 percent of quota per year, or 600 percent of quota over a three year period —— six times what would have been available only a few years ago. IMF adjustment programs will span a number of years rather than the one-year period normal in the past, in recognition of the difficult structural problems faced by many IMF borrowers. The Fund will focus more heavily on policies to stimulate investment and productivity, complementing its traditional emphasis on demand management. And the Fund is planning to establish an interest subsidy account to help ease the financing burden on its low income borrowers. These efforts by the IMF are closely paralleled by a major initiative being undertaken by the World Bank to promote structural adjustment in developing nations. With strong support from the United States and Japan, the Bank has begun a new program of medium-term lending, conditioned on recipients' adoption of economic policies designed to assist structural adjustment. The required economic programs, which will be coordinated closely with the IMF, will focus on the supply side, partly in response to the energy situation. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 nlan.Tf® B?nl\,l?as ?°Ved irnP°rtantly into the energy area. Existing plans for lending to support increased energy production and * hwVfQQ?raenmuCan1 foV approximately $14 billion in new loans by 1985. The Bank is actively searching for additional ways to further energy development in borrowing countries, including °fuan energy facility or affiliate, which would consolidate and enhance Bank activities in this field. Increased energy conservation and development, an expanded role for the IMF and World Bank, and implementation of the MTN are a11 critically important steps in dealing with the difficult problems facing the world economy. Equally important however, will be continued close cooperation among such major ' economic powers as the united States and Japan in attacking WA h.v.11?1 PC°a1!uStOf J-nflatlon' slow growth, and protectionism. We have learned that policies to control inflation, stimulate growth, and maintain open markets must be designed and implemented m a coordinated, cooperative way, if they are to be effective. Through continuing consultations, the United States and Japan have defused problems potentially damaging to our bilateral relations and to the world economy — notably, problems of destabi- ^zlr}g Payments imbalances and of trade flows and market access. The United states recognizes and appreciates Japan's constructive actions in pursuit of agreements reached in these consultations. Japan has sustained a healthy growth rate relative to other OECD countries, despite inflationary pressures and a growing current account deficit. This strong domestic performance in Japan has provided welcome strength and stability to world economic activity. The performance of Japan's external sector has also made a welcome contribution to international economic stability. In a period of large OPEC surpluses -- and in light of the quite arge surpluses in Japan's own current accounts in earlier years -- JaPaP f acceptance of a swing into deficit has been approoriate and helpful in easing the positions of weaker countries. Moreover strong Japanese economic growth, coupled with a significant reduc-' tion m tariff and nontariff barriers, has provided improved market access for developing countries, enabling them to finance a larger portion of their deficits through export earnings. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 The U.S. current account has also moved in a direction that co^f^tes t0 the stability of the system. From a deficit of $13.5 billion in 1978, the U.S. current account has shifted to approximate balance in 1979 and 1980. A small surplus is likely next year. Given the role of the dollar in the world payments system and the instability associated with earlier U.S. deficits str°ng U.S. current account position plays an important stabilizing role. These developments in the U.S. and Japanese external positions.demonstrate not only our ability to work together to maintain stability in the monetary system, but also the capability of the system itself to foster adjustment of destabilizing imbalances. The positive developments to which I have referred should not blind us to the fact that important problems remain to be resolved. We must not bury our heads in the sand and allow these problems to grow to proportions that damage the relationship we have worked so hard to build. For example, when bilateral trade problems are an issue, the bilateral trade balance becomes an important factor shaping public attitudes toward those problems. It is difficult to shrug off the fact that the United States has continued to run a persistent, multi-billion dollar trade deficit with Japan — nearly $9 billion last year — even though overall U.S. and Japanese current account figures have moved toward a pattern more consistent with global stability. We need to take further action to prevent these figures from becoming a political lightning rod. More generally, we must find constructive approaches to the remaining problems between us. Let me make some suggestions on actions we can take. For its part, the United States must continue to fight inflation; reduce energy imports; restore the ability of its industries to compete in world, as well as domestic, markets; and maintain firm resistance to protectionist pressures. These prescriptions are often noted by Japan in our consultations. We agree, and we believe we have much to learn from Japan in carrying out this effort. The generally cooperative and positive relationship among Japanese business, labor and government is frequently cited as one important factor in Japan's successful and dramatic economic growth. The time has come for greater cooperation among these groups in the United States. President Carter's new economic revita­ lization program takes an important step in that direction. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7 - A new advisory body — the President’s Economic Revitalization Board, comprised of representatives of business, labor and the public — will advise the President on a wide range of economic policy matters relating to economic revitalization. It also will be charged with planning an industrial development authority to provide financial assistance for regions hard hit by economic dislocation. The President’s revitalization program contains proposals aimed at stimulating private capital investment and improving labor productivity. Liberalized depreciation allowances, a refundable investment tax credit and reduced employer payroll taxes are among the measures proposed. The reduction of individual tax burdens in ways that do not rekindle inflation also is an important part of the President’s program. We recognize that this is only a first step, and that consistent, long-term efforts will be required to bring inflation fully under control, to restore a dynamic and productive industrial sector in the face of new energy realities, and to reduce further our dependence on imported energy supplies. We are committed to making that effort. During this process of adjustment, however, the United States will continue to be subject to the strains of economic dislocation. In periods of slow economic growth, high unemployment and dislocation, protectionist pressures inevitably mount. The Carter Administration has strongly resisted general import restrictions, recognizing fully such action would only delay the necessary process of adjustment by American industry and increase inflationary pressures in the U.S. economy. The U.S. Government can, through such measures as tax incentives, adjustment assistance and retraining programs for workers, encourage the movement of resources into more productive sectors of our economy. Yet a successful adjustment to changing economic conditions cannot be achieved solely by actions taken domestically. U.S. firms in industries that are competitive internationally must be given the same competitive opportunities in foreign markets that foreign producers enjoy in the U.S. market. Japan has an important role to play in this regard, and Japan's own actions can help strengthen resistance to protectionist pressures in the United States and other important Japanese export markets. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 While Japan has taken significant steps during the Multilateral Trade Negotiations in opening its markets to foreign goods, continued visible movement in that direction is needed. There must be a perception of ongoing Japanese willingness to offer reciprocal competitive market opportunities. That perception, in the case of the United States, is particularly important in those product areas in which the United States is most competitive. Tele­ communications equipment is one of those areas. Access by U.S. firms to Nippon Telephone and Telegraph Corpora­ tion's procurement of communications equipment has been an issue of contention in our bilateral relationship for several years. The issue has attained particular significance as a symbol of a closed Japanese economy, due to the delay in reaching agreement on high technology items important to continued U.S. competitiveness in international trade. The successful resolution of this issue will be possible if Japan agrees to apply full Government Procurement Code obligations to all NTT purchases. A similar case involves access to the Japanese market for U.S. cigarettes, cigars, and other tobacco products. That market, like the market for telecommunications equipment, is controlled by a government monopoly. Competitive oppor­ tunities for foreign producers in these markets can, and must be, substantially improved. A much more difficult area of trade access involves structural aspects of Japan's economy. Certain features of Japan's industrial structure and distribution system make it difficult for new entrants to sell in the Japanese market. There is no simple or easy means of eliminating these invisible, and in many cases inadvertent, barriers to entry. But until it is truly as easy to sell in Japan as in the United States, there will be a lingering impression that trade with Japan is not reciprocal. And as long as that impression persists, Japanese exports will be particularly vulnerable to protectionist demands. Japan's exports should, of course, continue to reap the benefits of trade that their quality and attractiveness have earned. At the same time, Japan must recognize that its exports may cause adjustment difficulties for importing nations. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 The U.S. automobile industry provides one highly visible example of the economic impact of today's energy realities, and of the difficult problems that can arise in adjusting successfully. U.S. automakers have begun a transition to production of small, fuel-efficient autos, which will be able to compete effectively with Japanese products. We welcome recent Japanese Government statements indicating its sensitivity to the short-term adjust­ ment needs of the U.S. auto industry. But this issue should not be viewed from a short-term perspective alone. For the longer term, Japanese auto companies and the Japanese Government can take several actions which would be a constructive response to the competitive imbalance in our two markets. Japanese auto firms could increase the purchase of U.S. auto parts, for use not only in autos exported to the United States but in autos sold on Japan's domestic market as well. They could also increase the U.S. value added in their finished autos by establishing automobile production facilities in the United States. We understand the Japanese Government is encouraging the auto companies to take such steps. The Government could also help by ensuring that there are no barriers to the sale of U.S. automobiles in Japan. We believe actions such as these would serve U.S. and Japanese interests alike. Steel is another U.S. industry that will require time to adjust to changes in the world economic climate. The recently reinstated trigger price mechanism will allow this industry to undertake needed restructuring measures, which should result in its increased com­ petitiveness on domestic and world markets. This program should help prevent future trade problems in the steel industry. On another, closely-related, front, we continue to seek Japanese support for reform of the International Arrangement on Export Credits, to reduce the subsidy element in export credit practices. Japanese and U.S. exports have been affected by the subsidy practices of other major trading countries, especially those that have increased the use of mixed credits mixing aid and official export credits, rte have been working with Japan and others to strengthen the internationa agreement by bringing its terms closer to current market condi­ tions. Instead of joining a costly subsidy race, or continuing to suffer from unfair competition, Japan and the United States both should give strong support to effective international discipline over such practices. This is another area where Japanese and U.S. interests fit hand in glove, and where our joint efforts could sway the outcome of international debate. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 10 Trade is not the only area in which increased Japanese leader­ ship would be welcome. It is also important that Japan play a role in international political and defense matters commensurate with its economic power. Japan has already taken important steps in that direction. We appreciate Japan's increasingly vigorous foreign policy role in such turbulent areas as Southeast Asia, the recent increase in Japan's official development assistance, and the special exception granted by the Government for a 9.7 percent increase in the defense budget. We trust that these will not be one-time efforts. Japan should continue to expand its lending for development purposes. Japan also should strive for steady and significant increases in defense spending and continued improvement in its force capabilities. Such measures will enable the United States and Japan to work together more effectively to meet our mutual security needs. It is characteristic of ongoing relationships that no matter how far we have come, we are always only part-way home. Continued close cooperation between Japan and the United States is especially important at this difficult time for the world economy. Successful management of bilateral economic problems, and cooperation in addressing the many serious challenges confronting us on the multilateral level, will make an important contribution to the health and stability of the world economy and to our own economies. The health of a relationship depends not only on resolving problems but also on anticipating, spotlighting and resolving them at an early stage, before they become highly politicized. Private sector groups, such as the Japan Society and the Wisemen’s Group, can make a particularly important contribution to the process of anticipating problems and working to avoid them. Groups such as yours approach issues from a less-pressured perspective than governments, and can be of great help in developing constructive, anticipatory approaches to potential problems. We appreciate your role in maintaining and strengthening the sound relationship between the United States and Japan. Our countries have made important progress, both in building institutions and in dealing with the substantive issues in our economic relations. There is a large reservoir of good will to draw on as we seek to further the process of cooperation and accommodation. I can assure you that the United States will continue to uphold its side of the bargain. I am confident that Japan will continue to do as well. oOo Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

G. William Miller (1980, October 15). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19801016_miller

@misc{wtfs_speech_19801016_miller,
  author = {G. William Miller},
  title = {Speech},
  year = {1980},
  month = {Oct},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19801016_miller},
  note = {Retrieved via When the Fed Speaks corpus}
}