U.S. Sharply Raises Tariff on European Pasta

With the nation’s trade deficit heading for a record, the Reagan Administration late Thursday announced a hefty increase in the tariff on pasta products from the European Community, a tough step that could touch off a major trade battle.

Negotiations in the “pasta wars” broke down after the European Community made a “clearly inadequate” offer to accept more American citrus, said Clayton K. Yeutter, U.S. special trade representative.

The talks failed despite a sense of urgency going far beyond the importance of spaghetti and lemons. American officials and businessmen fear that the Europeans may counterattack with new restrictions against U.S. agricultural and industrial products, including California lemons and walnuts.

High Tariffs on Fruit

This country has been trying for 16 years to get high European tariffs on citrus fruit reduced and in June boosted duties on pasta imports, though that increase had not been put into effect while the talks were in progress.

Meanwhile, negotiations are continuing on another delicate issue, the surge of shipments of European steel to this country.

The Administration is threatening to bar certain imports for the rest of the year unless a new agreement is reached with the European Community on steel. Despite an agreement in 1982 to curtail steel imports, the Europeans increased their shipments to the United States 20% in the first nine months this year, while other countries voluntarily reduced their sales by 14%.

The rising tension between the United States and its European trading partners came on a day when the Commerce Department reported that the trade deficit hit $15.6 billion in September, a record for a single month.

The pasta-citrus negotiations did not produce an offer from the Europeans until Thursday, Yeutter said. “At a time of rising protectionist sentiment in the world, the EC response is extremely disappointing,” he said Thursday night.

The tariff on pasta products made with eggs will be increased, effective today, to 25% of the value of the goods, up from the current 0.25%. The tariff on non-egg pasta, now 0.5% will be increased to 40%.

Yeutter called the increase in European steel shipments this year “an unconscionable violation” of the 1982 agreement to restrain imports. Unless a new agreement is made, Yeutter warned, this country will simply ban imports from Europe in certain categories of steel for the rest of the year.

Even before the pasta talks broke down, the outlook for a settlement had not been rosy.

European Counterattack

After the United States announced its June boost in the tariff on European pasta, the Europeans counterattacked by raising their duties on imports of American lemons and walnuts. But the two sides agreed not to put the tariff increases into effect while they negotiated.

Earlier Thursday, Commerce Secretary Malcolm Baldrige appealed to Congress and America’s allies for cooperation. “We cannot solve our problems or the world’s economic and trade problems with protectionism,” he in an address to the National Press Club. “That would simply shrink overall growth opportunities by attempting to slice the pie differently.”

The Administration is engaged in a two-front campaign, trying to defeat protectionist legislation in Congress while attempting to persuade America’s trading partners to stimulate their own economies in an effort to absorb some of the imports now flowing into the United States.

Hard Times for U.S. Firms

The substantial volume of imported goods is creating hard times for American manufacturing firms, thereby slowing the growth of the U.S. economy. The government’s gauge of future economic performance rose a modest 0.1% in September, the Commerce Department reported. Business will keep expanding but at a restrained pace, experts believe.

“The picture looks reasonably healthy,” said David Ernst, vice president of Evans Economics Inc., a Washington consulting firm.

The September surge in goods from abroad, a 21% rise, included large quantities of automobiles, clothing, steel, oil, telecommunications equipment and electrical machinery, producing a record $33.3 billion in imports.

Exports Rose Less Than 2%

U.S. exports, by contrast, rose less than 2%, totaling $17.7 billion. The U.S. dollar, strong in relation to the currencies of other nations, has made imports relatively cheap for American consumers while driving up the prices of American goods for foreigners.

The September trade deficit of $15.6 billion--the difference between what is imported and sold abroad--was up sharply from the August figure of $9.9 billion. For the full year, the trade deficit is expected to hit an unprecedented $150 billion, compared with last year’s record $123 billion.

Thousands of U.S. factory jobs have disappeared because of competition from imports, increasing the pressure on Congress and the Administration to protect the health of domestic manufacturing.

Indicators Up Only 0.1%

Meantime, the government reported that the leading economic indicators, the broad-based gauge of future economic performance, rose only 0.1%, compared with a gain of 0.9% during August. The signals from the 11 measurements of activity were mixed, with the volume of industrial contracts and building permits increasing as new orders for consumer goods declined.