C. FRED BERGSTEN has been distributing a paper entitled ``Trade Policy: Apocalypse Now?'' It's scary stuff.
The director of the Institute for International Economics (IIE), an influential Washington think tank, speculates about the damage that might be done to the world economy should four major developments go badly in the next two months or so:
1. Congress votes down the North American Free Trade Agreement (NAFTA). The target date for its passage is Nov. 17.
2. The Asia Pacific Economic Cooperation Forum goes badly. This first-ever summit of Asia Pacific countries takes place in Seattle Nov. 18 and 19, with President Clinton, Japanese Prime Minister Morihiro Hosokawa, and several other leaders present.
3. Bilateral trade negotiations between the United States and Japan come to an early head, with Japan rejecting US demands for quantitative targets for certain imports and for specified reductions in its global trade surplus. Congress next passes legislation imposing such targets, with deadlines, and mandating retaliation if the targets are not met. Trade conflict between the world's two largest economies then escalates substantially.
4. The Uruguay Round of world trade negotiations fails in Geneva. The seven-year-long talks face a ``truly final deadline'' of Dec. 15. ``Its collapse,'' Mr. Bergsten states, ``would produce an immediate reversion, mostly notably in this country but elsewhere as well, toward alternative tactics - unilateral, bilateral, and regional - for pursuing trade goals. The relatively open multilateral system that has undergirded postwar prosperity and stability could be fatally subverted.''
If all four events took a bad turn, ``American leadership would end,'' Bergsten warns. ``Globalism would retreat substantially if not dissolve. The psychological impact of such events on the world economy could be traumatic.... Markets everywhere could react sharply.''
Carl Weinberg, international economist of High Frequency Economics, wants the world to continue moving toward a more liberalized trade regime and cheers on Bergsten's efforts to forward that goal. But, he says, ``Bergsten's job in the world is to be alarmist.'' He describes Bergsten as an unpaid ``ambassador without portfolio'' for the Clinton administration.
Should the Uruguay Round fail, Mr. Weinberg says, ``the sun will come up Dec. 16.'' He doubts that the markets for foreign currency or stocks would be much affected because the present international trade regime will still be in place. The world will have lost a good opportunity, but for investors or foreign exchange traders it will be difficult to measure specific costs of that lost opportunity. ``It is the absence of something we don't have we are talking about,'' he says.
But Alan Meltzer, a professor of economics at Carnegie-Mellon University in Pittsburgh, says failure of the Uruguay Round will have a ``serious effect'' on world living standards. By contrast, success would reduce barriers to trade in goods and services, help eastern European nations export products, provide protection to intellectual property, including patents and copyrights, and trim the restraints on world agricultural trade. Meltzer wonders why the Clinton administration has been relatively silent on that world round versus the considerably less important NAFTA.
Bergsten says he hopes that a greater awareness of his scary scenario will turn it into ``a self-denying prophecy'' - in other words avert failure. He actually does not regard that compound failure as having a high probability, even though possible.
A colleague of Bergsten's at IIE , Jeffrey Schott, says the trade talks, especially in the area of ``market access,'' have been going better in the last month than he had expected. Progress in Geneva and in bilateral negotiations between nations have already produced ``a sizable package'' of trade reforms that will make the final concessions for a deal more tempting. For example, tariffs on average would shrink one-third, but disappear in some sectors.
He doesn't expect the US to accept France's demand for softening an earlier agreement liberalizing farm trade in these negotiations. But he's hoping other members of the European Community will buy off France's opposition with extra assistance to French farmers. A deal, he says, ``is not pie in the sky.''