Eye For Eye, Tooth for Tooth

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As far back as last May, Washington threatened to retaliate with equally prohibitive 200% tariffs against a range of European products. They include not only liquor but such necessities of yuppie life as Gouda cheese and canned ham. (The price of Gouda, for example, would virtually triple, to around $30 per lb.) The cheap wines and pricier cognacs that the U.S. has targeted are worth an estimated $250 million annually to French and Italian exporters; the British gin trade would be socked for $70 million more. After the tariff threat was raised, some progress was made in resolving the issue, but then talks stalled once again.

While trying to sound as tough as possible, Trade Envoy Yeutter made clear that the U.S. still prefers peace with its European allies to a trade war. Even if Washington's agricultural retaliation takes effect, Yeutter emphasized, "it will still be a small portion of overall ((U.S.-E.C.)) commerce." True enough: overall trade between the two sides amounted to more than $120 billion in 1985.

Washington can point to the resolution of the U.S.-Canadian lumber tiff as a victory for its tougher trading stance. The lumber issue boiled up in October, when the Commerce Department announced a Dec. 31 deadline for formal imposition of a 15% duty on Canadian softwood, which took up 32% of the $9 billion U.S. market in 1985. The U.S. argued that Canada unfairly subsidized the exports. Rather than face the U.S. duty, Canada proposed its own 15% export tax, which is expected to hike the cost of the average new U.S. home by about $1,000. The U.S. agreed to that solution, but since the Canadian tax will not take effect until at least Jan. 8, Washington has still imposed its own 15% tariff as an interim measure.

Washington's attitude toward Brazil is "wait and see." For more than three years the U.S. has objected to Brazil's protectionist policy toward its computer and data-processing industry. Foreign investment is effectively banned, and protection of U.S. copyrights on items like computer software is not adequate. The U.S. Commerce Department claims that the restrictions cost American firms between $337 million and $452 million a year. Now the Brazilians argue that they are willing to make concessions, and the U.S. will give them until July 1 to do so.

In the end, trading harmony on all fronts may be restored. What is troubling, however, is the prospect of what might happen if it is not. As most students of history remember, a worldwide trade war helped deepen the Great Depression of the 1930s.