NEWS ANALYSIS : Focus of U.S. Trade Tension Shifts to Europe

Watch out, America. Europe is back.

The 1980s, with the dawning of the era of the Pacific Rim, was a decade in which most of the economic attention--and conflict--between the United States and its trading partners centered on Japan and the growing export prowess of such Asian nations as South Korea and Taiwan.

No longer. At least for now, Washington’s trade problems with Japan and the rest of Asia are receding into the background. And tensions between Washington and some of its European allies are rising.

A newly ebullient Western Europe is emerging from the pessimism that gripped it in the early 1980s. Its own impending economic integration in 1992 and Eastern Europe’s plunge toward free markets are bound to make the United States and Europe ever more interdependent and prone to economic and trade fights.

“With the collapse of the Berlin Wall, the sheer magnitude of the issues facing the United States in Europe are going to dominate the Administration’s attention,” says David Hale, an economic historian who heads Kemper Financial’s economic research unit in Chicago. “At the same time, people have simply gotten tired of re-running the U.S.-Japan conflict over and over again.”

The quarrels between Washington and Europe will range from such small issues as steel quotas and growth hormones in cattle feed to far more fundamental disputes over farm subsidies, transatlantic investment and how best to absorb the crumbling Soviet Bloc into the world economy.

“In terms of both policy challenges and business opportunities, most of the action in the 1990s will be in Europe,” says Michael Aho, director of the international trade project at the Council of Foreign Relations in New York. “We still have problems with Japan, but many of them are decades old. Meanwhile, the European Community is changing the rules of the game.”

The seven-nation economic summit here provides telling evidence of just such a shift in focus. While U.S. officials had nothing but praise for Japan, the Bush Administration wasn’t so kind or gentle with respect to Europe.

As the summit opened Monday, both Agriculture Secretary Clayton K. Yeutter and U.S. chief trade negotiator Carla A. Hills trained their big guns on the 12-nation European Community’s longstanding intransigence in the ongoing negotiations over its massive farm subsidies.

“Our concern with . . . the European Community thus far is that they simply have not been engaged,” Yeutter said. “We cannot negotiate with ourselves.”

Going further, Yeutter directly challenged Europe’s claim that its small farmers deserve special consideration.

“The fact is the community is not competitive in agriculture and that’s why it does not prefer free trade. The community, of course, is strongly in favor of additional trade liberalization in areas where it is competitive,” Yeutter said. “It’s nice to be able to have your cake and eat it, too, if you can--but that’s really not the way the world works.”

When Hills weighed in, she was just as blunt. The dispute over agricultural trade, she said, pits the EC against “all exporting nations, of which the United States happens to be one. Could the United States be . . . more flexible, less stubborn, and succeed? The answer is no. Were we to not get fundamental reform . . . we would have 40 nations get up and leave these negotiations.”

Meanwhile, even though public attention is still riveted on the potential economic threat from Asia, the decades-long trade dispute between Washington and Tokyo has moved to the back burner.

“People may be far more concerned about Japan than the Europeans,” said Alan Stoga, economic analyst at Kissinger Associates in New York, “but as far as the Bush Administration is concerned, the big strategic issues are in Europe.”

Last month’s broad Structural Impediments Initiative (SII) agreement, which covered such wide-ranging issues as expanding public investment in Japan and shrinking the U.S. budget deficit, “concludes an era in U.S.-Japanese relations,” said a senior Administration official. “It marks a real turning point in our relationship.”

Not everyone is convinced that troubles in Asia are over.

“The fundamental causes of trade friction between (Japan and the United States) have not been addressed,” argues Clyde Prestowitz, a former U.S. trade official who now heads the Economic Strategy Institute in Washington. The SII agreement, he adds, creates “a false impression of solving problems when we should be preparing to manage continued bilateral tensions.”

Indeed, there’s little doubt that the United States has not seen the last of its trade conflicts with Japan, which continues to maintain deeply entrenched business practices that serve to keep out foreign goods. “If the trade deficit with Japan starts widening again,” said Stoga, “the issue will return with a vengeance.”

Nonetheless, not only Washington but the whole world is clearly obsessed with the historic developments in Europe.

“Europe is at the dawn of a new era,” trumpeted the seven summit nations in their political declaration Tuesday.

While unquestionably welcome, the economic revival of Europe will pose entirely new challenges for the Bush Administration.

“The rest of the world understands better than we do that the world economic stage now has three elephants--the U.S., Europe and Japan--rather than just one,” says the Foreign Relations Council’s Aho. “Unless we develop a vision of how to deal with that, it could get pretty crowded up there.”