Beware a barrage of greenbacks: US support for its exports could scupper European recovery, says David Bowen

JEFFREY GARTEN, the American Commerce undersecretary responsible for international trade, said last week that there would be a 'bloody fight' to win contracts in fast-growing developing markets, particularly in Asia. On the same day the Commerce Department announced its biggest ever monthly trade deficit for goods, of dollars 11bn, for July. Exports fell, while imports remained flat.

Put these two together, and we (or those of us who are not Americans) should be quaking in our boots. For there is a very real danger that the US is preparing to lay down a barrage of greenbacks in support of their guys that will blow European companies off the face of the Far East. If they do, Britain's recovery in exports will stall, for it is based to a large extent on exactly these markets.

Richard Needham, the Minister for Trade, has said he wants UK sales of capital goods to non-OECD countries to double by the end of the decade - sales such as power stations, chemical plants and metro systems to markets such as Indonesia, Singapore or (Dr Mahathir permitting) Malaysia. The Pergau dam affair is a silly glitsch in what has, so far, been a reasonably successful attempt to tap into the double-digit growth rates of these countries.

But why should we be so afraid of the Americans? They are, surely, lousy at selling anything except arms and aircraft beyond their own back yard, and are implacably opposed to subsidies.

That is precisely the problem. For many years the American administration - prompted by its powerful industrial lobby groups - has taken the view that the only reason US exporters have done badly is because the competition has been cheating. An eye for an eye, it has said, and a subsidy for a subsidy. Only our American subsidies will be bigger than yours.

A decade or more ago, Washington noticed that there was growing use of mixed credits to win big contracts. To a Third World country the credit terms on a new power station were usually more crucial than the final price: a lower interest rate or longer term could make tens of millions of dollars difference to its national cash flow. But there were OECD rules that stopped countries just cutting the interest rate, which is why the French (quickly followed by others, including the British) came up with a wheeze called credit mixte. Add in a dose of aid, the effective interest came down and the buyer jumped at the deal. Mixed credit could even be justified, if necessary, on the grounds that it made aid go further.

The US did not like mixed credits, and set up a dollars 1bn 'war chest' to counter European and Japanese attempts to use it. By making offers the foreigners could not match, Washington hoped they would give up their devious ways, and return to the unblemished path of free-market virtue.

Trouble was, it was a little too easy to see the evil hand of subsidy behind every offer that happened to be better than an American one. If it was not explicit, the Americans believed, it was probably being slipped in by the back door, so they would threaten to use their war chest anyway.

The war chest has been topped up, and is now set at dollars 150m a year. More worrying, under Mr Clinton the rhetoric has also been topped up, and the belief that foreigners are always trying to cheat has become an obsession. Steel imports have been blocked because they are too cheap, while Airbus has been threatened with all sorts of horrors because of the subsidies it gets from the Europeans. Yes, Airbus is subsidised - but so are American aircraft makers.

But, as Mr Garten says, the fiercest battlefield is now the Far East, and it will not be difficult for Washington to spot examples of foreigners on the fiddle. Pergau was one - a British minister promised aid for a dam if the Malaysians signed a military order - but not an especially egregious one. The French have linked aid to military sales more than once, and must have watched the fuss over Pergau in Britain with bemusement. The Japanese have an 'aid' programme that has done plenty of favours to Japanese companies; the Americans need only look, and they will find.

Will they then be able to restrain themselves from crying cheat, and wheeling out an even more enormous war chest? They should - for there lies the path to mutually assured commercial destruction - but on Clinton's form so far, the omens do not look promising. The US Marines are on the horizon - and they are not going to do anyone any good.

(Photograph omitted)