Ottawa summit: heading off looming foreign trade clash?
Washington — Seven nations, preoccupied with domestic economies, meet in Ottawa next weekend intent on preventing trade rivalries from driving them into begger-thy-neighbor protectionist policies.
The nations that will be represented at Ottawa are mutually aware of the dangers of protectionism, but each has acute domestic problems.
The commitment by British Prime Minister Margaret Thatcher to monetarism (controlling inflaiton by limiting the growth of the money supply) is accompanied by riots in Britain. Newly elected Socialist French President Francois Mitterrand proposes to push job-creation by every means including nationalization of industries. Canadian Prime Minister Pierre Trudeau, primed for the meeting by an initial visit with Reagan, has adopted a nationalist attitude toward foreign control of Canadian companies. West Germany leads complaints about America's high interest rates (a variant of the effort to fight inflation by shoving down on the interest brakes).
The United States, biggest and strongest of the group, is undergoing fundamental changes in economic philosophy that may leave this country as the big question mark in the minds of other attending the meeting.
Mr. Reagan has come through Phase 1 and 2 of his battle of the budget in Washington and now faces a climactic phase. Confrontation with Congress in Phase 1 gave him his $695 billion spending target, adopted for the fiscal year starting Oct. 1, with agreement on initial $36 billion spending cuts.
Phase 2 involved deviding how spending programs would be scaled back -- Reagan won this inning but left irritation and some uncertainty.
Now, just as the Ottawa international gathering meets, comes Phase 3, the reconciliation of spending cuts by the US Senate and House of Representatives, and the start of action on his proposal 25 percent across- the-board cut in personal income taxes, plus an accelerated depreciation tax for business.
Because Reagan's economic program is not yet in place, the bulk of the effort to lower inflation has fallen on the shoulders of the Federal Reserve Board. The Fed's tight- money policy has led major banks to hoist the prime interest rate to 20.5 percent.
Lending to the air of uncertainty about the potential for success of the Reagan administration's economic package is a US business community that thinks Reagan's projections are over-optimistic. The bond and stock market have not responded to his hopes.
The Morgan Guaranty Trust Company this month estimates that US spending this fiscal year (1981) will be $6 billion higher than the $655 billion Reagan administration estimate in March.If unemployment rises one percentage point, it can add $7 billion to income-security expenses; if interest rates rise a point, it could add $3 billion to $4 billion in spending costs.
The high US interest rates are attracting investment from abroad and boosting the value of the dollar against foreign currencies. It also means US exports are more expensive and European and Japanese imports cheaper, and it raises the price of oil which is based on dollars.
This is a point at which President Reagan's economic program collides with the policies of its trading partners.
Reagan wants cooperation from trading partners at Ottawa, but no more so than they want cooperation from him. the difficulty is that their interests in critical areas conflict. Global interrelationship has grown.
The US has protected its ailing automobile industry by pressuring Japan to limit exports. It is not the same as slapping on heavy tariffs, but it is a kindred form of protectionism by "voluntary" quotas.
Somewhat similar quota systems are proposed, or in effect, for other commodity imports into the US. The administration, however, rejected pressure for quotas on shoe imports from cheap labor count ries, Taiwan and South Korea.