Commentary: Suddenly, Europe Fears Fortress America

Washington preached about protectionism for years but now is practicing what it pleases

Fortress Europe. That used to be the great fear of both the Washington political Establishment and Corporate America. As Europeans pursued more and more economic integration, the argument went, the U.S. would be shut out of the biggest single consumer market in the world. But it hasn't quite turned out that way. The trans-Atlantic commercial relationship, with its $1 billion in daily two-way trade, is one of the richest business partnerships on the planet. And Europeans--cultural grumbles aside--have embraced Corporate America and its icons. Take just about any downtown corner in Europe, with Starbucks (SBUX ) and McDonald's (MCD ) and Citibank (C ) branches in abundance, and it could pretty much pass for Anytown, U.S.A. Minus the Eiffel Tower and the Brandenburg Gate, of course.

How the tables have turned: If Europe Inc. has an existential worry these days, it's called Fortress America. When Germans, French, and Spaniards look across the Atlantic, they see walls going up ever higher around various parts of the American economy. Steel, timber, and agricultural products--they are all getting new pledges of protection from Washington. Sure, President George W. Bush espouses free trade, but it's hard to find a European who takes him at his word. "The bottom line is that the U.S. government is protectionist and the European Union is simply not protectionist, apart from agriculture," says Leo Apotheker, chief operating officer of German software giant SAP (SAP ).

Of course, America's $400 billion current-account deficit suggests foreign nations encounter few obstacles selling into the U.S. Just as important, the Americans and Europeans have a rich history of bickering over trade, then quietly settling their differences. And many a European politician must secretly sympathize with Bush when he makes a protectionist move to satisfy a local constituency. The road to European Union, after all, is paved with local compromises and concessions of every stripe.

But Europeans have a subliminal feeling that something has changed for the worse in the U.S.-Europe dynamic. The protectionist messages from the Bush Administration seem too inflexible--and too numerous--to be dismissed. The result is the dread suspicion that U.S. hegemony is less benevolent and far more one-sided in its demands than many thought. "European fears might be wrong," says Clyde V. Prestowitz Jr., former U.S. trade negotiator and now head of the Economic Strategy Institute, a Washington think tank. "Yet perceptions do count, and perceptions right now are bad."

America's moves are especially galling to the growing ranks of Europeans who want the EU to promote free trade, not squelch it, and who want an end to subsidized business, not its resurrection. For free-market champions like Prime Ministers Tony Blair of Britain or José María Aznar of Spain, America's latest maneuverings are practically an act of unconscious betrayal.

Thus, the Europeans dislike the 30% protectionist tariffs that Bush slapped on steel imports last March. Europe spent 30 years restructuring its steel industry--why can't the U.S.? And the Europeans really hate the $190 billion farm-subsidy bill signed into law on May 14, a move that undercuts efforts to rein in Europe's agricultural subsidies. "The French will now have a very, very good argument against reducing payments to their farmers," says Paul Brenton, head of the trade-policy unit at the Brussels-based Center for European Policy Studies.

Sadly, the aftershocks of September 11 may make the trans-Atlantic divide even wider. Longstanding U.S. concerns about technology transfer--even to NATO allies--mean it will largely be American defense contractors that benefit from Pentagon spending. Even the British, staunch supporters of the U.S., may not get a break. British defense contractor BAE Systems (BAESY ) wants to bid for U.S. satellite maker TRW Inc. The word in Washington is that the British should back off.

Americans were once right to be concerned about a protectionist Europe. It took a lot of shouting and cajoling before U.S. companies could enjoy a somewhat level playing field in the EU. Europeans and Americans must now make a similar effort to make sure Fortress America does not become reality.

Europe Regional Editor Rossant covers trade issues from Paris.

By John Rossant

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