[Congressional Record Volume 141, Number 102 (Wednesday, June 21, 1995)]
[Senate]
[Pages S8830-S8831]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                         THE DEFICIT AND TRADE

 Mr. SIMON. Mr. President, one of the most impressive leaders I 
have met during my years in public service is Helmut Schmidt, who 
served as chancellor of Germany.
  Recently, he had an article about trade, which is interesting both 
because of what he says about trade, and also, because of what he says 
about our deficit.
  Listen to these words:

       Every economist knows that the U.S. trade deficit can be 
     eliminated only through a sizable reduction of the budgetary 
     deficit. This fact is also well-known by the White House and 
     Congress. And yet, American politicians continue to pretend 
     to themselves and their people that the Japanese are 
     responsible for their misery.

  I am not saying that the Japanese are perfect in terms of opening 
their market to other countries, but there is no question that the 
principal reason for our trade deficit is our budget deficit. We have 
shot ourselves in the foot. We have a self-inflicted wound.
  I ask that the full statement by Helmut Schmidt, which appears in the 
Los Angeles Times, be printed in the Record.
  The material follows:

     [From the Los Angeles Times/Washington edition, June 14, 1995]

                    The United States Is Dead Wrong

                          (By Helmut Schmidt)

       Listening to the U.S. trade representative these days 
     evokes sounds of battle, of the adversary's conning and one's 
     own self-righteousness. The recurring topic is automobiles, 
     and everything is directed against Japan. If the overall 
     trade between the two countries is in deficit for the United 
     States, then--obviously--must not it be Japan's fault?
       In reality, the United States shows a trade deficit not 
     only with Japan but also with the rest of the world. Even if 
     Japan were to buckle under the pressure from Washington to 
     agree to import quotas for American automobiles--which would 
     be in violation of the treaty establishing the World Trade 
     Organization and of the painfully achieved results of the 
     GATT Uruguay Round--the structural illnesses of the American 
     economy would still remain untreated.
       Every economist knows that the U.S. trade deficit can be 
     eliminated only through a sizable reduction on the budgetary 
     deficit. This fact is also well-known by the White House and 
     Congress. And yet, American politicians continue to pretend 
     to themselves and their people that the Japanese are 
     responsible for their misery.
       Washington's attempt to impose larger sales of American 
     automobiles on the Japanese constitutes a serious violation 
     of the principle of freedom of trade. Those who believe that 
     punitive import duties of 100% on automobiles imported from 
     Japan would give European cars a better chance are 
     shortsighted indeed. This trade war can spread very rapidly. 
     It can fast affect other areas, such as the aircraft industry 
     and modern information technologies, as well as the 
     television and movie industries.
       In short, Washington is dead wrong. Its actions can 
     endanger the world economy as a whole. Those Americans who, 
     in spite of paying lip service to the contrary, really quite 
     like the fall of the dollar on the currency markets because 
     they hope to increase exports, should remember this: Whoever 
     weakens the dollar as a leading world currency will undermine 
     America's role as a world power in the long run.
       Japan's position, however, is also unhealthy in the long 
     run. Over the past 15 years, its production has largely 
     exceeded its domestic consumption and investments. The 
     extraordinary savings of the Japanese have turned their 
     nation into the world's largest creditor. And no overpowering 
     creditor will remain popular for long.
       The leading officials in the ministries of finance and 
     industry and trade who, in reality, control the Japanese 
     economy have succeeded in structuring an economy oriented 
     exclusively toward consumer self-restraint within and toward 
     expansion in trade abroad. Neither the Japanese people at 
     large, nor even most of the politicians, seem fully aware of 
     this.
       True, Japan has become a potential world power because of 
     the foreign-policy leverage of its overwhelming financial 
     strength. True, the annual interest and dividends from abroad 
     have reached nearly one-third of the annual surplus of its 
     trade balance. True, the Japanese foreign currency reserves 
     have levels twice as high was those of the United States. 
     Yet, Japanese citizens pay for this nominal wealth with 
     sacrifices in consumption, especially by giving up adequate 
     housing standards.
       The Japanese markets are a difficult terrain for many 
     foreign sellers. But even if President Clinton's offensive in 
     the automobile trade war were successful, this would change 
     little in the structure of the Japanese economy, which would 
     continue to be oriented unilaterally toward exports. A 
     structural reform to promote domestic expansion would in all 
     likelihood take about one decade, about as much time as it 
     would take to orient American structures toward a balanced 
     budget. Until now, neither country seems to wish such drastic 
     reforms. [[Page S 8831]] 
       Tokyo's political leadership has not yet realized that 
     Japan's increasing economic strength has lead to an 
     increasingly vulnerable foreign-policy position, not only 
     vis-a-vis its only ally, the United States, but also vis-a-
     vis its many neighbors in East and South East Asia. An Asian-
     Pacific economic entity under Japanese leadership is even 
     less popular with its neighbors than a European Union under a 
     theoretically conceivable German leadership.
       In the long run, Japan will remain dependent on a tolerable 
     relationship with the United States. This conflict will 
     benefit no one in the world. America is wrong in today's 
     trade war, which is not to say Japan is right. Restraint is 
     desirable from both sides. Both nations must realize that a 
     structural reform of their economies is a must.
       Helmut Schmidt, the former German chancellor, co-founded 
     (with former French President Valery Giscard D'Estaing) the 
     annual economic summits of the seven leading industrial 
     countries. This year's opens Thursday in Halifax, Nova 
     Scotia. This article is from Global Viewpoint, adapted from 
     one originally published in the Hamburg-based Die 
     Zeit.
     

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