The Economy: World Trade: A Clash of Wills

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For all the politeness, however, both sides were quite firm and explicit in restating the chasmal disagreements between the two nations. Rogers, speaking "directly and candidly," demanded a substantial revaluation upward of the yen, elimination of Japanese restrictions on U.S. imports and a "dramatic" increase in Japanese aid to developing countries. Japanese Foreign Minister Takeo Fukuda, who is a leading candidate to replace 70-year-old Prime Minister Eisaku Sato, was prepared to make one concession. He announced that Japan will remove import quotas on several U.S. products, including soybeans, light aircraft and air conditioners. But he was adamant in rebuffing demands that the U.S. considers to be far more crucial. Most notably, Fukuda refused to consider an upward revaluation of the yen, which has risen about 6.5% —far less than the U.S. wants—since Tokyo reluctantly decided to float it against the dollar last month. He also suggested that U.S. manufacturers would benefit from "more aggressive salesmanship," and told Rogers that the surtax must be quickly rescinded, hinting that Tokyo might otherwise be forced to use "countermeasures."

Reparations Argument. The mood in Europe also grew darker. It was not helped by a parade abroad of official American flag wavers, who have tried to hard sell the U.S. program in rather unconciliatory terms. Paul Volcker, Under Secretary of the Treasury, irritated the French by telling them that Nixon, for political reasons, will be unable to devalue the dollar. In Brussels and Paris, U.S. ambassadors and their aides summoned groups of resident U.S. businessmen to advise them that foreign governments actually approved of the Nixon program and that the U.S. position should be, "We don't apologize for anything." Speaking at a Paris news conference last week, Senator Jacob Javits invoked what has become the World War II reparations argument. "Europe still owes us a great deal," he said.

European business leaders strongly disagree. They have long pointed out that the current U.S. balance of payments deficit is much more directly a result of the Viet Nam War than of the long struggle to contain Communism in Europe. In addition, they note, part of the dollar outflow was caused by U.S. inflation, which made it more profitable for American businessmen and bankers to invest in European projects than in opportunities at home. "Nixon's campaign is not so much economic as patriotic," says the chairman of a large Belgian bank. "Patriotism and clarity of thought are almost always incompatible."

Though Europeans were united in their distaste for Nixonomic rhetoric, they could agree on little else, least of all on their response to it. The sharpest policy split in Europe divides France and West Germany. The French insist on maintaining a fixed exchange rate against the dollar on commercial transactions, while the Germans contend that all nations, at least temporarily, should float their currencies against the dollar, as Bonn did last May.