Why Washington frets over deficits and trade despite 1,200 Dow

Washington and the US business community agree that international trade needs to become a top priority. But there's little consensus on how to reach that goal.

There are at least three proposals circulating in Washington designed to sharpen America's competitive edge, including a proposal from President Reagan to set up a Cabinet-level department of trade.

Business and government officials say Americans don't realize the importance of international trade to a healthy United States economy. Five million US jobs depend on the export of manufactured goods, notes Michael Smith, deputy US trade representative. Last year, US merchandise trade with all countries reached a deficit of almost $42 billion.

''The United States has gradually declined from a position of clear industrial and technological leadership in the postwar world to one where our preeminence faces serious challenge,'' Ambassador Smith told a conference of New England leaders here this week.

Commerce Secretary Malcolm Baldrige broadly outlined Monday the President's decision to try to establish a department of trade. The Office of the US Trade Representative (USTR) would be merged with the Commerce Department to form the new department. Various Commerce Department divisions unrelated to trade could either be incorporated into other federal agencies, eliminated, or become federal agencies of their own. In Senate hearings Tuesday, former US Trade Representative Robert S. Strauss endorsed Mr. Reagan's plan.

There are also two bills before Congress that deal with this issue. One, proposed by Sen. William V. Roth Jr. (R) of Delaware, would create a department of trade separate from Commerce. The other, proposed by Sen. Daniel Patrick Moynihan (D) of New York, would pick up trade functions in the nine Cabinet-level departments and five independent agencies, plus the USTR, and put them into the Commerce Department. The President has said he supports the Roth bill, though it differs considerably from his own proposal.

Those favoring these various trade department proposals see them as a way of consolidating trade functions spread out in other departments - such as the State Department and Department of Defense.

But the business community has mixed reactions on the plans. Some executives say these ideas would only rearrange the deck chairs, and would not provide a coherent direction for trade policy. Some businessmen have ''a fundamental skepticism whether anything will change except the nameplate on the door,'' says Paul A. McCracken, a former chairman of the Council of Economic Advisers. But he adds that he doesn't think there is any major opposition to a department of trade from the business community.

Some business leaders are concerned that the bureaucratic red tape will get thicker if any of these proposals are enacted. Executives involved in international trade fear the idea of more and larger administrative levels to cut through.

''The reorganization of government isn't really required,'' says Joseph Andrews, executive director of the International Business Center of New England. ''We have a Department of Commerce, and why not settle for that? What's necessary is presidential commitment to the idea that we . . . are serious about international trade.''

But Mr. Andrews also says there is a good argument to be made for establishing a trade department. ''If an action like that were taken, it would be recognized by Japan and other countries that we really were giving trade the kind of dedication it requires.''

Reagan's plan ''is a step forward,'' says William Gallagher, a vice-president of Textron Inc. ''It indicates there is a high level of concern in Washington over these things.''

Some say this concern exists more because of politics than anything else. Harald Malmgren, a former deputy trade representative, maintains that ''the reason of the President's timing is to meet the Democratic question.'' Trade is a hot issue among Democratic candidates, Mr. Malmgren points out. ''The President is saying, 'We have to find a way to answer the Democrats. One thing we can do is reorganize.' ''

Political pressure is dictating the timing of Reagan's decision, ''but the substance of the problem has not been gotten hold of yet,'' Malmgren says. ''It's not the fault of anyone in particular. It's just that there is no broad sense of direction in trade yet.'' He adds that the President has been hasty in the trade department proposal, and that the administration needs to define its trade-policy goals before it redesigns the structure to carry out those goals.