GENEVA, NOV. 30 -- Former Federal Reserve Board chairman Paul A. Volcker said today that the massive trade imbalance between the United States and the rest of the industrialized world is "a symptom of wider international economic difficulties," and that the imbalance and those wider difficulties need to be corrected together.
Describing himself as "a monetary has-been," Volcker said a new round of global trade talks will fail without "a clear sign of progress" in reducing the massive U.S. trade deficit and in raising the level of economic policy coordination among major industrial nations.
Volcker spoke here at the 40th birthday celebration of the compact that polices world trade, the General Agreement on Tariffs and Trade (GATT), which is struggling to deal with new trade problems and increased threats of protectionism.
"The erosion in confidence in GATT is a symptom of wider international economic difficulties," Volcker said. "Those difficulties must be dealt with on their own terms, or the GATT process will be one of the casualties."
His prescription is the same one that he and economic strategists for the Reagan administration, such as Treasury Secretary James A. Baker III, have offered repeatedly: "convincing and sustained budgetary discipline in the United States" and greater domestic growth in countries with large trade surpluses, such as West Germany and Japan.
Although Volcker said he is "happily free of all official responsibility," his words carry so much weight in world financial markets that he deliberately avoided talking about the sharp fall of the dollar and stock markets today.
The closest he came was a statement that the global stock market collapse six weeks ago was "warning enough for concerted action along those lines."
Most of his focus was on trade. Volcker called on industrialized and less developed countries alike to make major concessions in the round of international trade talks that started a year ago.
He pointed out that the United States, with five years of record trade deficits, will be unable to take the leadership role in this round of GATT talks that it has taken in seven previous rounds. The U.S. trade deficit approached $170 billion last year and is likely to remain at that level this year.
"We have to accept that American negotiators, in contrast with the past, will be unwilling and unable to offer concessions not visibly and fully matched by other countries," Volcker said.
"I need not belabor the risks to the trading system when the leading economic power is not equipped, economically or politically, to take the initiative in opening markets."
Without mentioning Japan or West Germany by name, Volcker said successful trade talks require that "other countries in a particularly strong trade and current account position should take a stronger role than in the past."
He said "there appears to be strong resistance" because of those countries' slow economic growth in the 1980s despite their growing trade surpluses. That slow growth reinforces "the natural reluctance of countries individually smaller than the United States and heavily dependent on trade to take the lead in offering trade concessions, even in the context of reciprocity," he said.
Given the high degree of respect for Volcker in international financial circles, his statement is likely to be a great help to American negotiators who have been demanding changes in the rules of world trade with few concessions to offer in return. In past trade rounds, the United States was in a strong enough trade position to offer the majority of concessions to liberalize the world trading system.
Now, however, Volcker said "the huge and persistent" U.S. trade deficit, which has hurt large segments of the manufacturing and farming sectors, "has triggered the more aggressive and threatening posture of the United States in dealing with the trade issue."
He said, "There is a widespread impression in the United States that we still have, by a good margin, the most open markets of any major economic power. The consequent sense of unfairness is surely well grounded in fact, even if the degree of difference in 'openness' is arguable and may be shrinking."
In urging the new trade round forward, Volcker said GATT should "go on the attack to deal with the new challenges of the late 20th century rather than merely continuing the rear-guard action against protectionism of recent years."
He said, "No lesser vision, I suspect, would be compelling enough to hold at bay the intense political pressures in the United States to increase our own trade restrictions."
He suggested that the new GATT talks increase the obligations of the less developed nations, especially those that are moving into "middle income" status or are newly developed countries (NICs). He said GATT "imposes few obligations" on these countries, allowing them to protect favored industries.
He said new GATT rules should list specific criteria "for graduation from developing country status" -- a move NICs fought when the Reagan administration tried to take away some privileges.