Beryl Sprinkel, chairman ofthe president's council of economic advisors, said stronger
domestic demand growth in Japan and Western Europe is needed to
help stimulate U.S. exports without having to rely on futher
dollar declines.
    "Stronger domestic demand growth in the major foreign
industrial countries is needed to engender the much needed
expansion of U.S. export markets without having to rely on
further dollar depreciation," he told the Futures Industry
Association.
    Sprinkel said the recent recovery of domestic demand in
Japan and Europe has been one of the weakest in the post-war
period.
    "Stronger domestic demand growth in the major industrial
countries would help give balance to the current world
recovery," he said.
    Asked if Japan was not living up to commitments made last
month to trading partners, he said recent figures showed
Japan's economy grew by about 0.5 pct in the fourth quarter of
1986, "Not enough to sustain employment growth."
    However, Sprinkel said Japan had not reneged on its pledges
and was moving toward more stimulative policies, including tax
reform. "I suspect there will be further moves," he said.
    Sprinkel repeated his call for further cuts in U.S.
government spending and for resistance to tax increases.
    "Reducing the federal government budget deficit by
expenditure restraint is needed to preserve the low marginal
tax rates achieved by tax reform," he said, adding that "a vote
to increase to government expenditures is a vote against tax
reform."
    Sprinkel said the fall of the dollar had substantially
restored U.S. cost competitiveness and that the deterioration
of the U.S. trade balance appeared to have abated.
    However, he said that "sole reliance on dollar depreciation
to reduce our trade deficit is not desirable," as it risks
inflation in the United States and recession abroad.
    "I am confident that further improvements in our trade
performance will contribute significantly to growth in 1987," he
said. Improvements in the U.S. trade balance, he said, will
come about largely from a swing in manufactures trade and
present "serious adjustment problems for U.S. trading partners."
    Western Europe, where manufactures output and employment
have been weak, promises to be especially hard hit by the
improvement in the U.S. trade balance, Sprinkel said.
    He defended flexible exchange rates saying wide swings in
rates were not a fault of the system but of the undesirable
policies that produced them.
 Reuter
