US trade toughness gets mixed results. Tariff hike could escalate into full-scale trade war with Europe
What the European Community had most feared in 1986 - a trade war with the United States - is now very likely to come about early in '87. EC reaction to the raising of duties by as much as 200 percent on selected agricultural goods coming into the US is terse and to the point: ``We'll fight back.''
But the retaliation is not expected before the US itself enforces its Jan. 30 deadline.
That deadline already represents an extension of an earlier deadline. But failure of the US and EC trade representatives to resolve the problem of farm surpluses in both trading blocs over the last six months does not augur well for a compromise to be reached in the coming month.
The prospect of an all-out trade war with the US is regarded as an even more serious development than the disclosure of US arms deals with Iran or the Reykjavik superpower summit, in which the possibility of removing the US nuclear umbrella was raised.
Both cases, involving issues of strategic and geopolitical importance, dealt heavy blows to Europe's confidence in US leadership.
The reason this latest concern, affecting trade issues, could prove more explosive is because of the serious political difficulties it raises with powerful trade and agricultural lobbies in individual EC countries.
Given the importance of the US market, the new tariffs in some cases are so prohibitive as to threaten economic ruin for some farmers as well as producers of agriculture-related goods, such as chocolates. The US curbs will hit such well-known commodities as French wines, British gin, Danish blue cheese, Dutch Gouda cheese, and Greek olives.
The US curbs, which are applied to the EC as a whole, are a consequence of the Community's expansion from 10 to 12 member states last January. Spain and Portugal, the two newest members, import approximately $500 million of US corn and sorghum annually, for use as livestock feed. But such US imports have now been effectively shut out because non-EC imports are penalized in order to encourage trade within the Community.
The US's higher tariffs, which raise duties from the current 15-20 percent to 200 percent, will try to recoup that loss.
Most European observers see the reprisal move as a political sop to hard-pressed US grain farmers. What worries them is that the measures will only help encourage protectionism in the US Congress and spread it to other items, such as manufactured goods.
The view of the British National Farmers' Union is that the world agricultural trade situation was already in severe difficulties, with countries trying to export goods that were too heavily subsidized.
A US-EC trade war, therefore, is not likely to bode well for the next round of General Agreement on Tariffs and Trade talks due to begin soon. How Europe will react to the US trade offensive will be spelled out when EC foreign ministers meet at the end of the month. The US reportedly anticipates that if it is obliged to go ahead with its new duties on Jan. 30, Europe will go ahead with its promised retaliation against US exports of wheat, rice, and animal feeds.