YEUTTER SAYS BUDGET CUT KEY TO BETTER U.S. TRADE A reduction of the U.S. federal budget deficit will be needed to help eliminate the nation's huge trade deficit, U.S. trade representative Clayton Yeutter said. Speaking to the New York Chamber of Commerce and Industry, Yeutter said "Capital and trade flows are clearly inter-releated now. "Unless we get the budget deficit down, we will not get the trade deficit down." He did not elaborate on his views of the linkages between the two deficits. Private analysts have said that the financing of large U.S. budget deficits requires heavy capital inflows from overseas investors through purchases of U.S. Treasury and, to a lesser extent, other U.S. securities as well. "We'll make some progress in reducing the 170 billion dlr trade deficit in 1987, but there's still a long way to go," Yeutter said. He said the problem must be approached on many fronts and focus most strongly on U.S. and overseas fiscal and monetary policies to foster economic growth, U.S. competitiveness and the establishment of a "level playing field" for trade. The U.S. trade representative said the Federal Reserve under Chairman Paul Volcker has done its part to improve the trade situation by getting interest rates down. On the fiscal side, Yeutter said "the budget deficit is still our biggest problem" and there has not been enough progress toward reducing that deficit. In the international area, he said that "our major trading partners could still do more to stimulate domestic growth." Commenting on Japan, which is running around a 80 billion dlr trade surplus with the United States, Yeutter said "Japan is just not doing the job on the import side." Yeutter declined to comment on statements relating to the dollar made earlier today by Commerce Dept undersecretary of Economic Affairs Robert Ortner. In a Washington address to an Export-Import Bank sponsored meeting, Ortner said he believed the dollar at current levels was fairly priced against most European currencies, but that the yen is 10 or 15 pct undervalued. "The market will determine the dollar's proper value in the end," Yeutter said. However, he added that, if the U.S. and other nations do not take the necessary steps to cut the U.S. trade deficit, "the dollar will be the equalizer." Yeutter said there is no quick fix to the trade problem and any resort to such tactics as protectionist trade legislation or trade restrictions poses real dangers. He said "there's relatively little that Congress can do to legislate a solution to the trade problem." Protectionist legislation will only provoke retaliation by U.S. trading partners, Yeutter said. "There is no doubt in my mind about the willingness of our trading partners to retaliate against unfair trade legislation," Yeutter said, adding that policy flexibility is essential in solving international trade problems.