US-Japan trade gap is expected to shrink a bit after new talks completed

A new round of trade talks between the United States and Japan, aimed at opening Japanese markets, will have only a modest impact on the massive trade imbalance between the two nations, experts say. At a 21/2-hour luncheon meeting in Los Angeles on Wednesday, President Reagan and Japanese Prime Minister Yasuhiro Nakasone agreed to establish high-level discussions on boosting US access to Japanese markets

The coming talks, which are expected to start soon, will be supervised by Japanese Foreign Minister Shintaro Abe and US Secretary of State George P. Shultz.

The discussions will focus on sectors of the Japanese economy where the US has proven its competitive mettle in other world markets. These include telecommunications equipment, computers and electronics, forest products, and medical supplies, including pharmaceuticals.

``I think it is a continuation of a very slow -- frustratingly slow -- chipping away at the problem'' of trade barriers, says George R. Packard, dean of the Johns Hopkins School of Advanced International Studies. However, it is positive to have leaders from both nations publicly committed to the success of such talks, he adds.

``I don't look for anything radical'' to come from the talks, which are much like other discussions held earlier, adds Edward J. Lincoln, a research associate at the Brookings Institution, a public-policy research organization in Washington. ``There will be further concessions out of Japan. The US will continue to complain progress is slow.''

The motivation for the meeting, which Mr. Nakasone requested, is ``entirely one of domestic Japanese politics,'' Mr. Lincoln notes.

Meanwhile, a surging dollar is making it even tougher for the US to sell its products elsewhere in the world. The dollar rose Thursday to a record high against the British pound. At the opening of trading the pound cost only $1.1450.

The dollar also rose to a nine-year high Thursday against the Swiss franc and would purchase 2.6235 francs at the opening in Zurich. There was no currency trading in Tokyo Thursday due to a holiday.

The West Coast summit came as Japan was closing the books on 1984, during which it sold an estimated $35 billion more to the US than it purchased. That accounted for roughly one-third of the overall US trade deficit for 1984. That deficit is estimated at $114 billion.

The US trade deficit with Japan is expected to climb to $40 billion in 1985. US Commerce Secretary Malcolm Baldrige estimates that the overall US trade deficit this year could hit $150 billion.

Each dollar spent overseas means one less dollar spent generating jobs within the US. Some top administration officials say they are concerned that as the US economy slows in 1985, protectionist pressures within the US will grow.

The next rallying point for those pressures comes on March 31, when the so-called Voluntary Restraint Agreement, which limits imports of Japanese cars, expires. Administration officials have not decided what position to take on the car import limits. The subject reportedly was not discussed in the meeting between Messrs. Reagan and Nakasone.

However, last month in Japan, Lionel H. Olmer, undersecretary of Commerce for international trade, voiced irritation with practices that effectively close important Japanese markets to US companies. He told a business group, ``Our access to the Japanese market is seen by almost everyone in my country and elsewhere as nowhere equal to Japan's access to other markets.''

A trade battle between the US and Japan would be especially dangerous for the world economy and could trigger retaliation, which might set off a downward spiral of world trade.

Together the US and Japan account for one-third of world production. The $80 billion trade flow between them accounts for one-fifth of all world trade, according to Japanese government figures. Japan is the second-largest US trading partner after Canada.

There are problems in focusing negotiations on specific sectors of the Japanese economy, says I. M. Destler, senior fellow at the Institute for International Economics.

If progress is not made in one sector, the danger is that ``we end up trying to restrict trade in that sector,'' he says.

Outside experts dispute Secretary Baldrige's estimate that restrictive Japanese trading practices account for between one-third and one-half the US trade deficit with Japan.

``I think that is nonsense,'' Mr. Destler says. A third to a half of the deficit is caused by US economic policies, which push up the dollar and stimulate domestic demand for imports, he says. Much of the rest is caused by the composition of trade -- the specific items the US sells and Japan buys and vice versa.

Even if Japan removed all of its restrictions, it is not clear that the US deficit with Japan would be cut sharply, he adds. For one thing, any additional imports could well be purchased from another country. -- 30 --{et