WALL Street is counting on Congress's approval of the new trade treaty.
Passage of the General Agreement on Tariffs and Trade (GATT) is viewed on Wall Street as the first part of a ``supply side'' tax reduction as well as a way to help keep down global inflation.
``GATT represents a global tax cut that will promote world trade and growth and actually lead to an increase in government revenues,'' says Wayne Angell, chief economist at Bear, Sterns & Co., Inc., a brokerage firm. The second part of the tax cut is a reduction in the capital-gains tax rate.
Over the long haul, the passage of GATT could add another 0.25 percent to the US annual economic growth rate, estimates Harvey Hirschhorn, executive vice president of Stein Roe & Farnham, a Chicago-based investment manager.
GATT should add jobs
This could add as many as 125,000 more jobs a year to the US economy if the economic growth rate remained at around 2.5 percent, Mr. Hirschhorn says.
If Congress either rejects or delays GATT, there could be a bad reaction from the financial markets since there is already an assumption that it will pass.
``My sense is that if it falls through this would be a problem for bond markets everywhere,'' says William Sterling, chief international economist at the brokerage firm Merrill Lynch & Co. He reasons that traders view free trade as ``anti-inflationary'' since foreign competition helps to keep prices in check.
Some analysts figure global stock markets would also suffer. ``The financial markets will take a hit if they think the GATT is going to be delayed,'' states C. Michael Aho, an economist at Prudential Securities. Mr. Aho expects any stock market reaction to be ``quick and severe.'' But markets could rebound, he adds, if there were some assurance the trade treaty would be passed in the first six months of 1995.
Overseas markets, too
Aho notes that there is now a significant amount of US investment in overseas stock markets. ``A lot of that investment is based on the assumption that foreign markets would be open for outside investment,'' he explains, ``but if GATT did not pass there would be increased uncertainty and people might try to liquidate what they have and not send new money overseas.''
A failure to pass GATT might also impact confidence. ``We would see a very disillusioned business community in the US and the world,'' says Clayton Yeutter, US Trade Representative under President Reagan. He notes that many US companies have expanded overseas assuming approval of GATT: ``Everyone is assuming that China will get into GATT on terms attractive to American business, which seeks to penetrate that market.''
For example, Texas Instruments has made investments of $1 billion each in new joint ventures in Taiwan, Singapore, and Malaysia in order to enter Asian markets. The company is expecting both Taiwan and China to receive GATT memberships, says Yeutter, who serves on the board of the Dallas-based company. ``If the GATT does not pass Congress, there are ramifications for trade with Taiwan and China,'' Yeutter says.