Q. Mr. President, I know there is no prearranged communique for this. You must have one or two things you'd like the summit to take note of. What's of particular interest to you and the United States that you'd like some sort of agreement on?

The President. Well, I think there are a number of things that we intend to talk about, based on the extensive consultations that have been going on for the past year with OECD and IEA, the International Energy program, our talks in COCOM and GATT and things of that kind. But the issues -- I think number one on the list will be the economy and how we can continue to get convergence so as to speed the recovery and to make it worldwide, because it is a worldwide recession. I think about problems with exchange rates -- --

Q. What kind of a statement would you like to see on the economy?

The President. Well, I would like to see it reflect the optimism that, from my personal contact with some of these other heads of state in advance of the meeting, that I've heard them express, as well as ourselves -- that we are on the way out. I think the United States probably is a little ahead of several of them on the recovery, but that's to be expected. That certainly can vary. I think a reasonably optimistic statement about our belief and our ability to handle this, to obtain a lasting recovery without any resort to the quick fixes of the past -- --

Q. What would that do -- an optimistic statement? What would be the result of that?

The President. Well, I've always believed that there is a psychological factor in things of this kind. If you have people feeling pessimistic, you're going to find a holdback on investments. You're going to find people basing and businesses basing actions on mistrust of the future, rather than confidence.

Q. Mr. President, in taking this more free-form approach to the actual transactions down there, aren't you running a risk of missing an opportunity? I mean, for instance, on the energy front at a time when oil is not in short supply, couldn't the U.S. and its allies be looking for more concrete things to do in unison that would help head off future energy shortages insofar as import duties or other measures?

The President. Well, when you discuss the whole subject of energy -- and, as I say, this is just one of a number of issues that I think there, that we've been discussing at the ministerial level over the year -- I think, yes, there are a number of facets to it long-range. The matter of nuclear nonproliferation, to see that we're all together on this and conscious of the threat that this could be to the other things we're trying to achieve in world stability and peace.

And that's the idea of this, that you have some issues that we know our ministers meet on and have talked about. But to put them out there without some prestructured meeting that's going to follow a definite agenda, and, who knows, there may be some one of them that's got some particular questions that they think should be taken up by the group. It'll be that kind of a discussion.

Q. Well, do you have any?

The President. What?

Q. Do you have any of those, specifically?

The President. No, well, I would like to reemphasize the importance of nonproliferation.

Q. Mr. President, in preparing for the summit, I'm told that you went to extraordinary lengths to brief yourself on the issues and to become well versed in the complex questions of international economics. That being the case, I wonder whether, in this whole process of preparing for Williamsburg, you're thinking about any of these issues has undergone any change, any modification or new subtleties that you may not have had before?

The President. No, much of the extensive preparation is because, being the host, I'm going to be in charge. I'm going to be the, well, you could call it moderator or whatever. And this has been a case of talking to the people that have been in the various meetings, all the discussions that have been going on, so that I won't in the series of meetings overlook anything.

Import Tariffs

Q. Mr. President, you decided to put high tariffs on imported motorcycles in April. Does it mean that change of this administration's free trade policy?

Mr. Gergen. [David R. Gergen, Assistant to the President for Communications] The motorcycles.

The President. Oh, no, this was a thing that's particularly under American law. Where there is a particular industry in an emergency situation and that must have help in order to make itself able to be competitive, it is a temporary situation. And our law provides for that, and that's what that was all about.

Williamsburg Economic Summit

Q. Mr. President, do you see any major differences with the European problems that need to be solved before you can come through to a successful conclusion to the summit? Any major differences with the European allies that need to be resolved at the summit before you can have a successful conclusion?

The President. I don't foresee anything, really, of a confrontational nature. I'm sure there are going to be differences of opinion and approaches and so forth. But I have been in communication with all of the participants -- in fact, several exchanges between each one of us. I'm having individual meetings with each head of state as they arrive; one just later here this morning with Prime Minister Nakasone of Japan. Yesterday I met with Fanfani of Italy.

I will be meeting with the others individually. And I have to say, I would be very surprised if there is anything -- --

U.S. Technology Exports

Q. There is one particular point that some of the Europeans are very worried about, which is U.S. attempts to put further controls on the onward export of American technology to the Soviet Union. And a member of your administration the other day said very clearly that if the Europeans are not prepared to accept these American controls on their territory, that the U.S. will have to cut off the flow of American technology to Europe in the first place. And I wondered what was -- --

The President. Well, this is legislation that is presently before the Congress. And it is undergoing changes, and we've registered our feelings with it. And the only matter that could possibly be considered in what you've just asked about is nothing but our own provisions about national security. And I can't comment further, because, as I say, this is legislation that has undergone a number of changes so far and is still in that process, and -- --

Q. Now you wouldn't -- --

The President. I'm not going to get caught talking about an apple when it may turn out to be an orange.

Q. You wouldn't envisage a situation in which your national security would mean that you needed to cut off American technology exports of certain goods to Europe?

The President. I can't see this getting to anything of that point. I think early in the legislation there might have been some things that went further, and we registered our protest about them.

International Trade

Q. Mr. President, given the general concerns about protectionism, would you consider, as has been suggested by the former French President Giscard d'Estaing that the summiteers sign a formal communique not to introduce in the next 2 years any new protectionist measure or any new trade restrictions? Sort of a formal document to that effect.

The President. I got distracted there. [Laughter] Can we take -- --

Q. Given the general concerns on protectionism, and you have stated that any bill that comes from Congress, for example, you will veto -- but would you be prepared, given the realities of high unemployment here and the fact that next year is an election year, to sign a formal communique saying, all right, no document with any further restrictions or trade tariffs will be signed?

The President. Well, now this is something that I'm sure is going to be a matter of discussion, based on my own communication with all of them. I think, from these conversations, that all of us are going to be on the side of not only resisting protectionism but looking into where it presently exists, how much we can do to lessen it. In fact, I've found agreement among everyone that this is not the way to go, that the more we can go toward free trade the better off we'll be.

Q. Well, supplementary to that, given the interdependence of the Canadian and American economies, it's being discussed again in Canada, the question of totally open, free trade between the two countries, no restrictions of any kind on anything, what do you think of that idea?

The President. Well -- --

Q. Sort of a North American economic union.

The President. -- -- you're asking me in advance of the discussion. I'm going to be very anxious to -- or interested in all of us laying out our views on this, because, as I say, I think that basically all of us are agreed that we're opposed to protectionism.

Nuclear Arms Reduction

Q. Mr. President, are you going to discuss any political issue like INF deployment, and the Soviets are saying that they will deploy INF in the Far East after accepting with the role from Europe. Are you going to negotiate on this issue with the Soviets on a global basis rather than on a regional basis?

The President. We would like, of course -- the original proposal we made, that the ultimate answer to this would be an end to those kind of missiles on both sides. If we have to take an interim step, we also would hope that it would be global, because many of the missiles we're talking about are mobile, and just driving them over some place else doesn't mean they can't be moved back. This may have to, as an interim solution, result in restriction on numbers, as we ourselves have said in an interim step we're willing to go to.

But we're very conscious of the threat to Asia and of being simply moved that way, and, yes, this will be a consideration of ours.

Q. Mr. President, going back to economic -- --

Q. Can I follow up on this?

Q. Sure.

Q. Does this mean you won't insist, you may not insist on not allowing those mobile missiles to be moved towards Asia?

The President. Lou, you're -- --

Q. George [George Skelton, Los Angeles Times]. [Laughter]

The President. Oh, I'm sorry, George -- [laughter] -- I'm sorry, I know that. We've known each other too long. Why did I make that mistake?

Q. Two powerful papers.

The President. What?

Q. Two powerful papers.

The President. Yes. I know why I did. The first briefing that I had said that he was going to be in here.

You're getting into an area that is very difficult for answers at this time, because we're getting into the area of what do you negotiate and how do you negotiate. And I don't think you can do this, particularly when the people you're going to be negotiating with will have this information available to them. So, strategy of negotiations, what you're going to demand, what you're going to try to do, that I can't talk about.

Federal Budget Deficits

Q. Mr. President, on the economic issues, you are optimistic, and I think most of your advisers are optimistic about this economy. And I think it's true that a lot of the people from the other allies are optimistic that there is a recovery going on. But I think they're very worried about budget deficits here.

Now, you seem to be saying that, yes, you want to get the deficits down, and, yes, it's Congress fault because they're not cutting spending, but a lot of people think that if you -- and you seem to be saying that deficits are really tolerable if you have to get them down by increasing taxes. The allies really don't care which way you get at it, I don't think, but they just want them down. Are you prepared to take a certain amount of pressure on that, and do you think you're going to get it there?

The President. No, I don't -- well, I'm quite sure they're going to want to discuss that and what our plans are. There is no way that you can cut enough in spending or increase taxes enough to eliminate the deficits. You can certainly help, particularly with the cutting in spending, because there's no question but that we have automatic built-in increases in our budgeting, which virtually have the budget out of control.

The only way, really, is the recovery of the economy, and this is why we've followed the course that we followed. To those who suggest you do it by taxes, they are suggesting the thing that would kill the recovery before it gets underway. You don't raise taxes and reduce the money in the private sector, as they would have us do, without setting back the recovery.

As for cutting, the budget proposal that we submitted to the Congress, and which in both Houses they refused to consider, actually would, while we will have a large deficit this year and next year, actually would have put us on a declining deficit with a projection down in the future where you could see a balanced budget coming up.

Q. But do you think that -- I mean, that still goes back to the fact if you can't get the moderate Republicans, because they're afraid of the 1984 election retaliation, if you can't get them to cut the spending the way you want it to, aren't you on dead center? And what does that say to the allies, when they know that the longevity of the recovery here is what's going to have to be in place to bring them along? I mean, you can't stay on dead center.

The President. Well, but the other thing is that since our plan is working, I don't care what the pessimists say and what the opponents say about it. Let somebody explain to me why interest rates have gone from 21\1/2\ down to 10, why inflation has been cut to less than a third of what it was, why industrial production is up, why housing is up, why automobile production is up, why retail spending is up, real income for the first time in several years is up, and an increased rate of savings. All of these things have taken place, and they didn't just come like locusts because the seasons changed; something must have been going -- we must have been doing something that was right.

Q. I think what they're scared of is continuing that. Do you not believe that the deficits are going to cut that short if you don't have a plan in place this year to cut them short in the next 2 years?

The President. The plan is in place. First of all, our plan did ask for further cuts in spending -- --

Q. But I mean in place for -- --

The President. -- -- and they did project out into the out-years a contingency tax increase that they could pass now based on certain, the economy meeting certain levels. In other words, the recovery would have had to be definitely established 2 years down the road from now, so that a tax increase would not be counterproductive, things of this kind. So, we were willing to meet on those two issues.

But the main thing about keeping the recovery going -- and this was the last sentence I wanted to add to all those other things -- is the recovered economy is the way to eliminate the deficits. If, for example, the growth rate in the economy should turn out to be 1 percent, just 1 percentage point higher -- not 1 percent -- 1 percentage point higher than we've estimated, 5 years down the road that would mean $100 billion less in deficit. If it were 2 percentage points higher, it would mean a surplus.

Q. I think what you're saying, if I can ask just one final question on that, is that the other heads of state seem to be saying, and some of your own advisers seem to be saying, that you're going to have a slower growth rate if you don't get those deficits down; you're not going to get that extra boost from the higher growth rate.

The President. But we are doing, as I say, all three. We're preserving the tax policies that have brought about in large part the economic recovery. We're asking for further reductions in government spending. We do recognize the possibility of a tax increase, once this recovery is on a solid footing, and if it should turn out to be necessary. All of this is going to result in reduced deficits in the out-years on a downward pattern, with the deficits going down. And, at the same time, the economic recovery is going to make, then, the biggest contribution in eliminating the deficits simply by the improved and restored economy. And so far we're leading the world in the recovery that we've made.

Q. Mr. President, one economist for Data Resources pointed out in testimony to Congress yesterday that the structural deficit which you've mentioned several times lately is at some $90 billion this year. Even calculating at full employment of 6 percent, that structural deficit will grow to $180 billion in 1988, due primarily to increases in defense spending, to increases in entitlement outlays because of demographic factors, and because of the indexing that will go into place in 1985. In other words, this recovery, even if it were to get us to 6-percent full employment, does not look strong enough to get at that deficit reduction projection through those years.

The President. Well, that's one economist's voice on this. I challenge some of the points that he made, for example, defense spending as being a major factor. Already, on our own, from our original February 1981 estimate of the 5-year program of defense spending, on our own, by finding legitimate savings and so forth, we have reduced that once-projected $116 billion increase over the projection of the Carter administration for the same period. We've reduced that down to about $50 billion. We've actually made savings of about $66 billion.

The other thing they don't stop to figure is that defense cuts of the kind that some are advocating, you're only going to get 50 cents on the dollar, because you're going to lose another 50 cents, the other 50 cents, in increased unemployment in the industries that would be affected and the lack of tax revenues that brings about.

Now, as to the figure on the structural part of the deficit, that's the structural part of the budget that I've been talking about and the one where we've had the least success in getting cooperation from the Congress. They have been the most reluctant to make the changes, those built-in increases. As for indexing as a means of increasing revenue, then for this administration, that has been referred to as unfair, more than three-fourths of that increased revenue will come from the middle- and lower income earners in our society, and I don't think that's a way to bring about a recovery. The indexing will, the relief that will be provided to individuals, three-fourths of it will go to those middle- and lower income earners.

Q. One further question. Are you concerned that a failure to reach a budget resolution by this June, on the first one, and possibly a second resolution by fall, might unsettle the financial markets and build in further inflation premium in the interest rates?

The President. I don't think so, I really don't. I think they understand. They have seen out of one House come a budget proposal that would increase deficits tremendously. Out of the other they've seen something of an effort of compromise. If you envision the normal legislative process of trying to get together on those two, you come down to a budget resolution that does mean increase to the deficits, and yet it is not binding as far as the executive branch is concerned. And I think that the financial markets understand what I have said repeatedly, that I will use a veto on both appropriation bills and any proposals on tax bills to prevent this extravagant budgetbusting or this wasteful spending to go on.

Q. But doesn't that mean, Mr. President, that effectively speaking, for the balance of this term, your first term, a lot of us are assuming, from your viewpoint, that you're not going to be able to make any kind of breakthroughs on entitlements or any other kinds of major changes, so that for the next 18 months it's just going to be this guerrilla warfare over this veto and that veto, and that you will not be able to make a dent in the deficit?

The President. No, I believe we can make a dent in the deficits.

Q. With the veto process?

The President. I have had a letter from each House with pledges to me regarding the sustaining of some of my vetos. And I think that the same process that led us to a bipartisan agreement on how to salvage the social security program, the same bipartisanship that has brought about the victory with regard to the MX missile, I think there are enough people up there in both parties that want bipartisanship and that want to find a solution to these problems.

Williamsburg Economic Summit

Q. Could I get back to the Williamsburg summit? Mr. Mitterrand, the French President, has said recently that he thinks he might just as well stay at home. He's also said that if he doesn't get satisfaction, particularly from the United States, on an exchange rate's intervention level of the dollar in the future, he doesn't think any further summits are worthwhile. And I wondered what you think you'll be able to do to persuade him that he isn't wasting his time at Williamsburg?

The President. I think he'll find out he isn't wasting his time. He'll have every opportunity to express himself there, and I do know that, again, at the ministerial level on this very subject, they have been meeting at great length. There's every intention that they go forward on this problem of exchange rates. This came up at the Versailles meeting, and the result of the Versailles meeting was the increased level of consultation at ministerial levels on this subject as well as others. And I don't foresee a confrontation.

Q. What do you think you'll be able to say to him about the rate of the dollar, the level of the dollar, which really concerns him?

The President. Well, the level of the dollar really is because we have been so successful in reducing inflation. And this is not an unmixed blessing for the United States, because we will probably have a 55 to 60 billion dollar trade imbalance this year because our dollar is so solid and so sound. It has made our export products expensive for the rest of the world.

Now, if they can have the same success that we've had with regard to inflation, there will be a better balance, and we'll all be better off.

Q. That brings me to ask, Mr. President, whether, in studying this whole thing, you've come to believe that these countries can, in fact, coordinate their national economic policies in some kind of rhythm that helps each other?

The President. Yes, I think it all comes with -- and this we've talked about already -- convergence. In other words, all of us recognizing that basically our economic structures are the same and going forward in the same programs of helping recovery, stimulating incentive to investment, to increased productivity, eliminating inflation, which then brings down the interest rates which are causing concern. This is the thing that we're aiming for, is this kind of convergence. And we will find that many of the exchange rate problems will disappear as we attain that.

Deputy Press Secretary Speakes. We'll have to stop there. I'm afraid we've had 30 minutes.

Q. Can we ask one question on Central America, which is on the summit leaders' minds, I'm sure.

The President. What was your last -- --

Q. I was going to ask, as far as the question on the exchange rates, isn't that going back again to the, you know, your advisers have been redefining what inflation is, and they're now saying it's not inflation -- I mean, interest rates are not too high because you really have interest rates minus the expectation of inflation. The expectation of inflation is there because you've got the budget deficits. The interest rates are what keeps, you know, the money coming into this country from France and from other countries. Isn't that going back to the same collision over the deficits?

The President. No, and it is true that when you have a dollar as strong as ours and these interest rates remaining there, yes, there's going to be a movement of currency. But the funny thing is they're not helping us pay our deficits, because right now the level of foreign ownership of our bonds is lower than it has been for many, many years. The money that's coming in from outside the country, the United States, is being invested in our economy, out there in the private sector. So, they're not, as some of them have suggested, they're not funding our deficits.

Mr. Gergen. George -- last question.

Central America

Q. Yes, I just -- this first killing of a U.S. military adviser in El Salvador seems to be sort of a milestone, symbolic if not otherwise. And with the Soviets increasing their direct intervention there with arms, are we reaching a point where we may have to consider increasing our involvement there, perhaps even thinking about committing combat troops?

The President. Well, so far, there's been no indication or no hint from any of those countries that this is what they want. I would like to have the cooperation of Congress in going forward with what our plan has been -- three times as much economic aid in that area as military aid, but allowing us to proceed.

Q. If they wanted it, would you consider it?

The President. What?

Q. If they wanted more help would you consider it -- combat troops even?

The President. As I say, the question hasn't arisen. But, again, George -- see, I got it right -- [laughter] -- you're getting into an area that, if only our side were listening, you might be able to respond to that. But you're getting into an area where I just don't think we should be openly discussing.

Q. Don't you think you're going to get a lot of questions on that at Williamsburg, over dinners, if not for putting in a communique? They're worried about this becoming another Vietnam, aren't they? I mean, isn't that what they're worried about, too, as much as people here?

Q. They're also worried about it going Communist, I would think.

The President. Yes, there must be the worry of that in our hemisphere here and the stepped-up aid. There has been as much aid by the Soviet Union, as much shipped into Nicaragua in these first 5 months as there was in the entire last year. And that has to be of concern to all of us.

Q. Thank you, Mr. President.

Note: The exchange began at 10:06 a.m. in the Oval Office at the White House.