Washington: One of the unmentioned costs of the Sept. 11 attacks was that creating a Bush trade strategy where none had existed for the previous decade was put on hold for a full six months. In that time the lack of progress on this front has deteriorated into the single greatest threat to a full economic recovery–not just in the United States, but globally as well.

The president and his trade strategists face a dangerous mix of the traditional problems of negotiation in the face of protectionist pressures, and also broader economic policy choices that must be made in a few months if the global deflation in prices and profits is to be reversed.

The most dangerous policy problem facing the Bush administration is whether to reverse decades of high-dollar monetary strategy that has made U.S. currency the world standard. An expensive dollar makes sense in booming economic times; it is anti-inflationary and makes trade earnings extra profitable.

But look at what’s happening these days. Japan, the No. 2 economy in the world and our largest national business partner, is bankrupt and sliding from deflation to depression. The net worth of the Japanese banking system is in the hole to the tune of more than $1 trillion and a massive devaluation of the yen is now in the works. In response, nearly every other Asian economy is about to launch “competitive devaluations” of their own. This was a feature of the Great Depression of the 1930’s and was known as “beggar-thy-neighbor economics.”

Cheaper Asian imports do help keep American inflation levels low. Last year U.S. import prices fell a record 8.9 percent and our domestic producer price index contracted by 1.8 percent in partial response. But the result also was that Asian suppliers of U.S. consumer goods were hammered by currency and price devaluations so they received 20 percent less for the same items they sold in the year 2000. The new wave of devaluation headed toward us in 2002 could provoke a tsunami of bankruptcies and defaults that would make the 1997 Asian collapse look like child’s play.

Even though the broad domestic economic numbers of the first quarter of this new year show a still-robust performance, we’re beginning to pay the price for global customers making their money less valuable. Not only are export sales declining but domestic strong points such as home building and Detroit car sales are weakening sharply for the first time even though the Federal Reserve has pushed consumer credit rates as low as they can reasonably be expected to go.

Tied to the dollar-strategy issue is the related matter of whether America should concentrate on new bilateral trade expansion moves or remain committed to the multilateral format contained within the World Trade Organization commitment.

So far the Bush trade negotiators have shown a greater willingness to go the bilateral route. In addition to new trade treaties with New Zealand and Vietnam, the Bush push has been to bring America’s new friend, Russia, and its eight former satellites–from Armenia to Uzbekistan–into full trade pact relationships.

But the White House will soon have to face what role it wants to play inside the WTO–or outside it. The recent WTO ruling against U.S. laws that give tax breaks to American exporters is just the latest case in which the Geneva-based group’s affinity for European complaints is a causing concern.

Not to be blunt about it, the WTO might better be located in Brussels instead of on the neutral turf of Switzerland. From bananas to beef and feed grains, the WTO seems most often to side against us.

A test case came last month when another multilateral panel, the Organization for Economic Cooperation and Development, gathered 30 of the major steel producing nations in Paris to try to work out a pact to sharply cut the huge oversupply in global steel production and the dumping in the U.S. market that has caused 29 U.S. steel makers to go bankrupt in the last four years, despite countervailing duties.

If the WTO interferes on the side of EU steel makers, Mr. Bush may have to chart a new direction for American trade policy or risk more than a recession.