West Germans differ on potential for serious US-EC trade war

The nasty phrase ``trade war'' has suddenly started cropping up here, and some (though not all) West German officials are finally beginning to take the threat seriously. Bonn's attitude toward the current American-European Community (EC) row is an important bellwether for EC attitudes as a whole, since Bonn is the chief paymaster of the Community and its most enthusiastic free trader. The attention getters are, of course, the new figures showing a record US trade deficit in November, the Democratic Congress that opens shop this week and now has the majority to legislate its protectionist predilections, last week's announcement that Washington will raise tariffs on imports from Europe, and the still falling dollar.

Speaking for all those who are alarmed by the speed at which the United States and Europe are heading for a clash, Foreign Minister Hans-Dietrich Genscher opened the new year by telling reporters that all political energies must now be devoted to averting a trade war.

A somewhat more orthodox West German view is presented by Mr. Genscher's Liberal Party colleague, Economics Minister Martin Bangemann, and by Chancellor Helmut Kohl's Chef de Cabinet Wolfgang Sch"auble. In his New Year's remarks, Mr. Bangemann dismissed the latest US tariff hikes as verbal threats and ``theater lightning.'' For his part, Mr. Sch"auble told journalists that Bonn would not accept barriers to West German machine-tool exports. The US announced new restrictions on Swiss and West German machine tools last week just before it confirmed the end of the six-month truce with the EC in setting up to 200 percent tariffs on imports of alcohol, cheese, and some other foodstuffs.

The implication of Bangemann's and Sch"auble's remarks was that a large element of bluff is involved in the US actions and that the scrap would blow over in the weeks before the US measures are due to take effect at the end of this month. A new element, however, is the willingness of veteran free-trade champion Bonn to go along with EC retaliatory tariffs against US exports to Europe of corn gluten, rice, and wheat.

US Ambassador Richard Burt is trying to disabuse the West Germans of the idea that the US is bluffing. The US wants freer access to agricultural markets in Europe and regards the government subsidies for the Airbus as ``preventing free competition in the aviation industry.'' European national monopolies on telecommunications equipment are also a sore point with the US.

Although West Germany is the world's largest exporter after the US, Bonn's greatest argument with Washington is not over the trade deficit as such, but over a domestic economic policy that could spur imports from the US. Unfortunately for bilateral relations, the two disputes are now reinforcing each other.

Bundesbank President Karl Otto P"ohl, hanging tough on maintaining the present 3.5 percent discount rate, warned against any substantial further drop in the dollar; such a fall would only threaten economic growth in West Germany and Europe, he asserted, and push up American inflation and interest rates. In his New Year's comments in the business daily Handelsblatt, Mr. P"ohl suggested two deutsche marks as about the right level. Yet the dollar currently stands significantly below this, at under 1.92 marks, down from 2.44 a year ago for its lowest rate in six years.

At this point, observers believe the pressure for reflation is mounting in West Germany, since economic recovery has been slower than expected. Washington is hoping for a shift in Bonn's policy after - as all polls indicate - the reelection of the present government Jan. 25.

The November trade figures helped trim the dollar by showing a record $19.2 billion US trade deficit. The EC as a whole makes a hefty dent in the annual balance, and American ire is especially directed at the EC because of the $400 to $500 million loss of US grain sales in Spain following Madrid's accession to the EC (and adoption of EC agricultural tariffs) a year ago. The EC sold the US $22.5 billion more than it bought from the US last year. US agricultural exports to Europe have halved in comparison with 1981, while US imports from Europe have doubled since then.

The US wants compensation for the loss of exports to Spain, most particularly in the form of guaranteed annual sales of three million tons of grain. Europe contends that the US should be content with Spain's lowered tariffs on soybeans and industrial products - and with the EC's contribution to the Spanish and Portuguese economies, and therefore to the fledgling democracies in these countries. It also wants some credit for the fact that the EC finally gritted its teeth last month and began production and price cuts in beef and dairy surpluses.

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