Europe's Answer to Connally

The realignment of currencies will solve only part of a larger problem: the future of trade, investment, and defense relationships between the U.S. and Europe. Beginning this month, President Nixon will discuss these issues with other Western leaders, and their bargaining positions will be determined by both fact and sentiment in Europe. TIME European Economic Correspondent Roger Beardwood has sampled the feelings of European finance ministers, central bankers, businessmen, and Common Market commissioners. His report on the issues and arguments, as the Europeans see them:

TRADE. The U.S. accuses the Common Market of discriminating against imports, thus aggravating America's balance of payments deficit. Not so, reply the Common Market's leaders. According to the General Agreement on Tariffs and Trade, tariffs of the Market nations on all kinds of goods average 6% v. the U.S.'s 7%. In every year since it was founded in 1958, the Common Market has bought more from the U.S. than it has sold there. Last year, its deficit in trade with the U.S. was $2.4 billion.

JAPAN. Washington spokesmen buttress their complaints about Common Market protectionism by emphasizing Japan's failure to build a sizable European export market. The U.S. is trying to persuade the Europeans to buy more Japanese goods, figuring that the Japanese would then ease their selling pressure in the U.S. Last year the U.S. took 30.7% of Japan's exports, while the Common Market countries took only 6.7%. Japan sold fewer than 35,000 cars in the Common Market Six last year, only 400 in West Germany. In electronics and textiles, too, the Japanese meet stiff resistance. According to the Six, Japan's problems in Europe are no proof of protectionism. Rather, they are a result of the distance between Japan and Europe, and of European manufacturers' producing efficiently the goods that local consumers want, delivering them faster than the Japanese can, and providing better service.

AGRICULTURE. The U.S. has charged that the Six discriminate against farm imports. They do. But despite discrimination, through tariffs and quotas, the Common Market is America's best customer for farm products. Between 1958 and 1970 the value of U.S. agricultural exports to the Six more than doubled to $1.9 billion. By contrast, the Six sent only $437 million worth of such exports to the U.S. last year. Is the U.S. or Europe in the right? Each is protectionist because each has a huge farm problem--a problem of productivity that rises faster than demand, and of consequent rural depopulation. Only 4.5% of the U.S. labor force is in agriculture, a figure that reflects massive migration to the cities. But 13% of the Six's workers are on farms, and the Common Market is determined to keep farm prices high to avoid repeating America's migratory tragedy. Besides, Europe's farmers are politically powerful.

INVESTMENT. American government and business leaders argue forcefully that continued U.S. investment overseas creates goods and jobs as well as profits, and thus is mutually beneficial. The Nixon Administration opposes further restrictions on capital exports. While most thoughtful Europeans agree that U.S. investment has fostered their continent's economic development, many argue that it has gone too far. American companies dominate European markets for computers, some telecommunications equipment and many pharmaceutical products. America's dominance or powerful influence convinces some European governments, especially France, that the current $11.7 billion total of U.S. direct investment in the Common Market countries is large enough. Temporarily at least, they would like the U.S. to discourage further capital exports, which are a basic cause of America's payments deficit. Europeans also argue that the U.S. should help to redress its capital balance by encouraging European investment in the U.S. instead of repelling it. The Common Market Commission argues that a complex of laws and regulations effectively excludes foreigners from buying controlling interests in a wide range of U.S. industries, including airlines, insurance, brewing and distilling.

DEFENSE. Viewed from Washington, U.S. military spending in Europe--$3.2 billion this fiscal year--is a burden to be shared more equitably by the host countries. The Europeans reply that NATO defends not only their continent but also the U.S. Even so, most Europeans fear a reduction in the U.S. military presence, though the fear is receding because of rapprochement between the West and the Soviet Union. Black-white riots at military bases and reports of declining morale have also reduced European faith in the U.S. defense shield. There will be bitter resistance to paying more for it.

Currency realignments, trade, Japan, agriculture, investment and defense --those will be big issues in the months ahead. The U.S. is determined to allocate its resources more carefully in future, to sharpen its competitive edge in world trade, and to renounce the role of global gendarme. The question is whether European leaders will be willing to pick up more burdens shed by the U.S. and make further concessions as a price for economic stability.

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