US and Europe: avoid Rambonomics

IF terrorism has brought out deep and disruptive transatlantic conflicts, this new month will produce expanded European-American confrontations over major trade problems. The possibility of a major trade war has been increased by the recent failure of Washington-Brussels negotiations and the resulting farm trade reprisal policy of the United States. Further controversies may emerge from the evasiveness and false optimism of the seven-nation economic summit in Tokyo. Many discordant notes were toned down in the final communiqu'e, but the fact is that the spirit of protectionism remains robust and hearty. The protectionist agricultural policies of both the European Community (EC) of 12 and the United States are just one aspect of a multi-dimensional clash. As of May 1, the Reagan administration has severely restricted European exports to the US as retaliation for lost American food sales abroad. The US asserted that high European farm supports, most of them in the EC's Common Agricultural Policy (CAP), have been unfair, unreasonable, illegal, and irresponsible. Since American agricultural export losses have increased enormously in the 1980s, the Common Market exports have increased while it has enlarged itself to include two new, heavy farm-export members, Spain and Portugal. Washington has responded with a linear, pure-black-and-white, quick-remedy policy.

Americans are angered because the EC has increased its share of world farm markets as world trade decreases and the American share falls swiftly. After the ``chicken war'' of the 1960s and ``cheese war'' of the '70s, we may be experiencing the first salvos of the ``wine wars'' of the '80s. Surely tough talk and tough terms are called for, but the result on both sides of the ocean has been more rancor and deepened frustration and resentment.

A trade war would be counterproductive. What is preferable is an overall US design that aims at expanding American exports rather than curtailing imports. The weaknesses of the domestic economy -- the stagflation, the balance-of-payments deficits, and the rapid decline of US competitiveness -- all need to be addressed. The central issue has to be the sharp drop in global demand for US farm products. Causes include the CAP protectionism, but consideration must be given to the overvalued dollar, new world competitors beyond Western Europe, and the recession and debt predicament of our potential customers. To claim, as has the Reagan administration, that protectionist Europe is the most disruptive factor in this world trading system is at the minimum forgetting Japan and several new third-world states. It also overlooks recent European farm reform measures.

Economic rivalry exists -- and European discrimination has operated against American interests. But stressing a search for unfair traders and suppressing commercial intercourse will only ignite the protectionist powder keg. What is forgotten or downgraded is the fact that Europe is America's best customer. What is overemphasized is Europe as America's major competitor. This scapegoating evades the most important barrier to the expansion of US exports -- the growing federal deficit.

From the deficit have come the high dollar, high interest rates, and debtor nations' strains.

Beyond the needed domestic economic reform, the US should seek a longer-range and more comprehensive strategy of international trade coordination. The Tokyo summit did not bring forth a serious commitment to the global multilateral talks on trade liberalization which were planned for September. In the GATT setting, the barriers and passions of transatlantic bilateralism might be reduced and rectified. But the focal point in the GATT negotiations ought to be the service sectors of industrialized economies. Tackling the area of trade that is not now covered by international agreements is a critical necessity, for the fastest-growing sector of ill-advanced economies is the services trade. Agreements about the intangibles of trade are essential, for services are already the nexus of many more conflicts than the farm.

The US has dwelt predominantly on unfair trade and exaggerated grossly its scope and size. Experts believe only 10 percent of our deficit results from such practices. Furthermore, our policy has inferred that we alone abide by the international rules. We have singled out for blame Western Europe and brushed aside Japan, Argentina, New Zealand, and Brazil.

At this moment in Atlantic relations, this kind of insensitive, misdirected, and probably fruitless approach only worsens matters. Escalating tit-for-tat retaliatory measures is Rambonomics; it oversimplifies, as did the might-makes-right in the Libyan case, a complex interdependent and global set of economic conditions and avoids our own internal situation as a part of the problem. A shortsighted, punitive policy toward our allies has emerged; it obscures the real difficulties and will likely fail, as will striking out superficially in the terrorism issue.

Pierre-Henri Laurent is professor of history and director of the international relations program at Tufts University.

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