The High Stakes Of International Poker

The most arresting figures in President Nixon's address to Congress last week were his figures of speech--notably those touching on the relationship between America and its world trading partners. Alluding to the billions that the U.S. has sent to foreign countries in aid and investment since World War II, the President said: "We have generously passed out the chips. Now others can play on an equal basis." And in what has already become a famous declaration of intent, he added: "The time is past for the U.S. to compete with one hand tied behind its back."

Such rhetoric, with its unsettling overtones of economic nationalism, reflects the stiff new American attitude toward world trade. Part of the rationale is the feeling in the Administration among many businessmen that postwar American aid gives the U.S. a claim to special treatment in global competition. But gratitude, especially for those services rendered more than two decades ago, is the slenderest of reeds on which to build a foreign policy, particularly in the pragmatic realm of economics. An even more pervasive notion behind the increasingly tough U.S. trading stance is that American spending abroad has been largely an altruistic gesture that has almost exclusively benefited the recipients.

Self-interested Generosity. Certainly, the U.S. has been generous. As Nixon stressed, it has dispensed $150 billion in economic and military grants and loans since World War II.

The military outlays alone, largely to fight the now-waning cold war, total $41 billion. But, notes James Grant, a former State Department high official and now president of the private Overseas Development Council, "every President, including Nixon, has made it clear that if we had not shored up NATO and our allies, it would have cost a lot more to adequately maintain our own defense establishment."

All together $109 billion has been spent in economic aid, mostly by the Agency for International Development and its predecessors. Of this, about $43 billion has been in the form of loans, of which $19 billion has already been repaid. Recipients of this aid are in effect required to spend practically all of it on American goods, thus boosting the nation's experts.

In addition, one of the biggest single outflows has been direct U.S. investment abroad--$75 billion worth. That is just the book value of U.S.-owned factories and equipment and holdings in foreign companies. The true resale value of those properties today is probably twice as much. IBM dominates the foreign computer field; Ford, General Motors and Chrysler ride high in the foreign auto industry; one-third of Italy's oil-refining business is U.S.-controlled; ITT's phone-making subsidiary has a monopoly in Belgium. From 1950 to 1970, American companies brought home from abroad $84 billion in profits.

How valid is the charge that the U.S. is unfairly treated in world markets? Administration officials contend that while America has freely opened its markets to outside competition, its trading partners have thrown up import quotas and other barriers.

In the Strait jacket. The complaint is certainly valid in the case of Japan, which has sealed off its markets while flooding other countries with its wares (TIME cover, May 10). In January, when the final cuts of the Kennedy Round take effect, Japan's tariffs on industrial goods will average 11% v. the U.S.'s 8.4%. Before Washington slapped on the surcharge, Toyotas and Datsuns easily rolled over the U.S.'s 3.5% tariff on cars; by contrast, Japan not only has a 10% tariff on American cars but also hits buyers with a special 40% sales tax.

Tokyo imposes import quotas and other restrictions on 80 items, including tobacco, rice, wheat, electronic components and computers. Almost anybody who tries to sell to Japan has to put up with a tortuous process of securing bank-issued licenses and coping with health restrictions (common American food additives are banned) and petty labeling requirements (all figures must be in the metric system). Even more vexing to U.S. businessmen are the straitjacket rules on foreign investment. For example, outsiders are still forbidden to own more than 50% of practically any Japanese firm. These barriers have held U.S. business investment in Japan to a rather meager $365 million.

Artful Hurdles. U.S. charges of unfair treatment by the Europeans are far less conclusive. By next January, the Common Market's industrial tariffs will average 8.3%--almost identical to the U.S.'s 8.4%. On the other hand, through a system of "variable taxes," the Common Market restricts imports of U.S. grain, beef, pork, poultry, lard and dairy products. Duties on them rise or fall to ensure that their prices are no lower than the inflated prices of comparable EEC goods. American imports are also blocked by a plethora of nontariff devices: border taxes, health regulations and artificial technical restrictions. For instance, Italy bans American oranges on the grounds that their citrus scales could spread and contaminate Italian oranges.

Yet the U.S. is no novice in artfully constructing import hurdles. Mandatory or "voluntary" quotas limit imports of steel, oil, cotton textiles, meat, sugar and dairy products. "Buy American" legislation bars the 'Government from purchasing foreign goods unless the price is 6% below that of comparable U.S. products. The "American Selling Price" system permits duties on benzenoid chemicals used in dyes and vitamins to be set not on the price of the import but on the cost of making the same chemicals in the U.S. Europeans complain that overly severe American health rules keep out many farm products.

For all the Administration's complaints about foreign restrictions, the postwar American trade balance ran a consistent surplus until last April. Even now, the U.S. holds a $1.8 billion annual surplus in trade with the Common Market. Japan, however, ships more to the U.S. than it buys--$5.9 billion v. $4.7 billion. The overall American balance of payments has long been unfavorable for a cluster of reasons, many of them not strictly tied to trade: the outpouring of foreign aid and investment, the cost of keeping a large military force overseas, and the spending by the army of U.S. tourists abroad.

In sum, the U.S. has not been treated as unjustly as the Nixon Administration indicates. Sensible negotiations--and a spirit of compromise--between the U.S. and its trading partners could eliminate some of the trade differences and make others easier to live with.

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