Apart from the task of building a new world economic order, the central issue dominating the thoughts of many in the US and Europe is a return of protectionism. At the annual meeting of the World Economic Forum which concluded in the Swiss resort of Davos on Tuesday, the underlying fear among many policy makers and commentators was the likelihood of an escalating trade war between the world's two largest economic power blocs.
Many believe that without some sort of exchange rate control, the US is likely to turn inwards, making life increasingly difficult for exporters from the Far East and Europe.
The worry is that at a time when most of the world is in trouble, the US and Europe are on the verge of a trade war - fuelled by issues ranging from bananas to agriculture - which could be enough to push the rest into a deep recession.
Protectionism in America is already climbing up the agenda. The trade deficit is at record highs, prompting serious criticisms from both companies and politicians. The steel industry is seeking comprehensive relief. Ma chine tools, semi-conductors, ship building, textiles and some agricultural sectors are expected to do likewise.
There are fears that even a small rise in US unemployment will be blamed on the trade deficit "exporting jobs", ratcheting up the pressure on trade policy. And many believe the administration is likely to be sympathetic given its debt to organised labour for delivering the money and votes that helped the Democrats to pull off their election success in November, although this is more familiar territory for the Republican party.
And there appears to be little love lost between the US and Japan at the moment. Japan's vice-minister for finance, Mr Eisuke Sakakibara (otherwise known as Mr Yen), last week refused to meet Mr Robert Rubin the US Treasury Secretary. And last week Mr Rubin's deputy, Mr Larry Summers, was certainly less than encouraging when Mr Sakakibara tried to talk up the Japanese economy. "We have heard that for the last eight years and I think it would be prudent to wait and see," he told the audience at Davos.
The European Union is already threatened by a range of US sanctions as a result of the dispute over banana marketing.
Not only will this have huge implications for world trade and for the next round of talks on the issue, which looks increasingly likely to begin at the end of this year, but it is also likely to have an impact on the dollar. Some commentators, recalling previous efforts by the US to reduce its deficit by dollar weakness, even believe that the dollar could decline by as much as 30 per cent this year.
According to the renowned US economist, Mr Fred Bergsten, the dollar will decline dramatically over the course of 1999. One of the main reasons for this is, of course, that America's current account deficit will rise to about $300 billion (€265 billion) or almost 3.5 per cent of the country's Gross Domestic Product. The last time it reached even close to the same level was in the mid-1980s when the dollar fell by more than 50 per cent against both the deutschmark and the yen.
The flipside of this is the large creditor positions in Japan and Europe. Japan's surplus is rapidly heading towards $150 billion and already the yen has been rising sharply.
The surplus in the euro zone is smaller but still, according to the European Commission, "unusually high" - and larger than at any time since the mid-1980s when the dollar was seriously overvalued.
Mr Bergsten also believes that the euro will see a sharp rise in its exchange rate, although that has certainly not yet proved true. Nevertheless, many observers still believe that large portfolio diversification from dollars to euro could reach $500 billion or even $1 trillion over the next three years.
On top of that there is a general belief that the US economy is likely to slow sharply in 1999 and this, combined with continuing problems across the rest of the world, means the Federal Reserve is likely to cut rates again. It is true that the European Central Bank is also expected to cut rates but the differential in short-term rates between the two is likely to narrow, again pointing to a lower dollar.
According to Mr Bergsten, the Institute of International Economics now believes that the equilibrium rate for the euro is about $1.25-$1.30 and about 100 yen. That implies a dollar decline of 10-15 per cent although some overshooting is also likely.
This is not good news for Europe or indeed Japan. A sharp rise in the euro will make life difficult for Europe's businesses, particularly exporters, and it could increase unemployment even further, while an excessive appreciation of the yen could completely retard any recovery in Japan.
Some sort of method of managing exchange rates is thus probably needed, despite continued US opposition. It already seems likely that Japan, Germany, France and Italy will raise this at the G7 summit in Bonn at the end of the month. Perhaps the US's co-operation will be bought by the promise of structural reforms across Europe to increase the so-called flexibility of labour and capital markets.
