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The next global crisis?
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March 5, 1999: 3:24 p.m. ET
As financial crises calm, bahts may yield to bananas and beef in trade war
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LONDON (CNNfn) - It's less than two years since the collapse of the Thai baht triggered a domino effect bringing chaos to the world's emerging economies. The next cataclysm, however, may begin not with bahts but with Airbuses, beef, or genetically-modified beets, not to mention steel or bananas.
In the New World Disorder born of the "global economic crisis", commerce -- not currencies -- threatens to become the front line in a new international clash over what constitutes good mercantile behavior.
So far, few signs suggest the divide may be bridged soon. As economic turmoil festers in large pockets of the world, the overarching fear in more affluent nations is that distressed regions will seize upon exports as an elixir to cure their ills.
Global trade talk these days brims with pointed barbs about export "dumping" and the onus of "restrictive" import barriers. The assumption underlying the debate is that too many cheap imports are "bad" for an economy, a contention that consumer advocates tend to reject.
Some experts, alarmed by weakening demand and global overcapacity in a slew of sectors, see a more virulent strain of economic contagion in the months ahead.
"I fear the financial crisis of 1998 may become the trade crisis of 1999," William Daley, the U.S. Secretary of Commerce. intoned in a speech in New York earlier this month.
Barbs from Brittan
Sir Leon Brittan, the European Union's Trade Commissioner, went so far Friday as to accuse the U.S. of acting like a "rogue state" for slapping tariffs on a range of EU imports before the World Trade Organization had issued a final ruling in a brewing banana brouhaha.
"I think it's an act of petulance and arrogance to say not only do we demand what we demand, but we insist on taking it before anybody has given an independent ruling that we're entitled to," Brittan told CNN.
Perhaps nowhere is the sense of imminent danger more fervently felt than in the United States, which feels it has the most to lose from being expected to snap up products other countries sluff off.
The U.S. economy grew at a surprising 6.1 percent annualized rate in the fourth quarter, its most rapid pace in more than a decade. Many officials see an omen in the disparity between America's economic resilience and the more sluggish growth scenario in the rest of the world.
Today's transatlantic brickbats with Europe over bananas, some analysts believe, could flare into tomorrow's knock-down battles in sectors ranging from airlines to financial services.
Not bearing a fair burden?
Even where common ground exists, it is often based on mutual distrust of others. Both Europe and the United States bristle at the notion that Asia -- code word for 'Japan' -- may regard their markets as a sponge for their cheap unwanted products.
The anxiety is evident in the mutual recriminations between Brussels and Washington about how the other side is not bearing its fair share of the "burden" in soaking up imports from Asia or Latin America.
Daley's remark about a looming trade crisis may seem overdrawn. But viewed in the context of official laments that the U.S. is now "the importer of first and last resort," it suddenly seems less far-fetched.
Naysayers look at the U.S. tussle with Japan over steel "dumping" and a widening rift with the Europeans over hormonally-treated beef, and see the incipient signs of "decoupling."
That's a fancy way of saying that unless the rest of the world can get its economic act together and rectify trade imbalances, America may simply opt to go it alone in the economic arena.
In reality, economists argue, a U.S. attempt to counter global weakness by balkanizing itself commercially -- or decoupling -- would be tantamount to cutting off its nose to spite its face. They note the Europeans are likely to feel similarly, despite grandstanding to the contrary.
Graham Bishop, an adviser on the single European currency to Salomon Smith Barney, said his "gut instinct" is that there is little willingness on the part of the Europeans to touch off a trade war.
"The solution to low growth in Europe," he added, "is not going to be exporting its way out of the problem." These days, Bishop noted, the euro-zone is so self-contained that exports amount to only 10 percent of GDP. In the time before the euro, that number was as high as 30 percent.
A raft of dreary economic data
Recent data suggest why European anxiety is cresting.
Industrial production declined 0.2 percent across the 11-nation euro zone in December. In hard-hit Germany, the economic engine of Europe, storm clouds have been stacking up on the horizon for months. In the latest dollop of sour data, the German Chambers of Commerce and Industry on Tuesday lowered the growth forecast for 1999 to 1.5 percent from 2 percent.
Meanwhile, the fledgling new currency, the euro, has mirrored the continental slump with a steady decline since its Jan. 3 launch. In recent days the currency has slipped below $1.09, hitting a lifetime low nearly 7 percent below its $1.17 launch level.
"What both blocs (Europe and the United States) would like to see are ways of limiting cheap imports from less-developed countries into their countries," said Ian Harnett, a European strategist with BT Alex. Brown in London. But "with everybody squealing about Latin America and Asia, it's not politically correct to take a pot-shot."
Many economists scoff at the notion of an export-driven growth strategy. They say consumer demand remains buoyant in many European nations, and point to developments suggesting Asia is getting serious about granting freer access to its markets and investment in infrastructure.
Daley, in his New York speech, pointed out that U.S. exports to the rest of the world rose 4 percent in 1998 even as they plunged 14 percent, or $26 billion, to Asia.
"That huge drop," he said, "accounted for about half the increase in our trade deficit, which I am unhappy to report set another record in 1998, the fifth year in a row."
But Robert Subbaraman, a Tokyo-based regional economist with Lehman Brothers, said while volumes of exports across Asia have grown over the past year, weak prices have meant total values have decreased.
Still, Subbaraman sees some potential for trouble.
"The risk is that if the U.S. and EU slow down, the export-market pie is going to get smaller and smaller…and that's going to lead to protectionist policies," he said.
Already, Subbaraman said, Indonesia's government has proposed a 40 percent levy on rice imports to help its cash-strapped rice farmers, while the Philippines recently hiked tariffs on chemicals.
But he added: "I would say at this stage, the main trading bodies such as ASEAN (Association of South East Asian Nations) or APEC (Asia Pacific Economic Cooperation) realize a move towards trade protectionism would be a step backwards."
Talk of trade war overblown
Others believe talk of a full-blown trade crisis is overblown.
Andrew Shipley, an economist with Schroder securities in Tokyo, said the wealth being generated by U.S. subsidiaries in Asia, such as General Motors in Japan, offsets the concerns about steel and other exports.
"The view from Tokyo is that a strong dollar is desperately needed in the global economy," Shipley said. For 1998, Shipley said, Japan is expecting exports to drop 1.6 percent.
"This is what the U.S. has wanted for years -- market access in Asia -- and if they blow this" because of trade, that would be a shame, Shipley said.
Subbaraman agreed.
"The U.S. can complain about all this, but the flip side is that sure, the U.S. is importing a lot more than they are exporting at the moment, but Asia could just as easily withdraw their investments in the U.S. They can say we (the U.S.) has to buy all of Asia's exports, they're not buying ours." 
--by staff writer Douglas Herbert
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