- The Washington Times - Friday, May 9, 2003

President George W. Bush is pushing hard for tax cuts to stimulate the sluggish American economy. Real disposable income fell slightly again in March, to levels below that of last November on a per capita basis. Yet the economic situation in most of the rest of the world looks far more dismal than in the United StatesSince the wave of financial crises in 1997, the global economy has stalled, confounding those who had heralded a new age of harmonious growth. While the U.S. economy is growing slowly, with forecasts around 2.2 percent for this year, the Economist of London has reported “the euro area seems to be fast heading back toward recession.”The ongoing conflicts at the United Nations over Iraq show the role of economic rivalry in world politics as states and corporations struggle for gains in rough times. France wants the U.N. to run the reconstruction effort, taking control away from the U.S.-led coalition. Moscow and Beijing are also eager to help rebuild Iraq. All three countries had substantial trade and investment ties to Saddam’s regime to which they gave political support in exchange. Unable to stop American military action through the U.N., they now want the U.N. to salvage their economic interests.The United States is right to block any such maneuver. Governments and corporations who partner with brutal anti-American dictators should suffer financial losses. It is also prudent to prevent the return of foreign interests who could support anti-American elements in Iraq and jeopardize postwar stability.But it is also proper for Washington to seek economic advantages. The Pentagon and the Agency for International Development are to make contracts only with U.S. firms. Supporting business at home while delivering assistance abroad is the best way to spend American tax dollars for the mutual benefit of both countries. The “oil for food” program, by which the U.N. managed Iraqi trade for the benefit of Saddam’s allies, must be terminated. Trade with the new Iraq should be structured to help offset the large global U.S. trade deficit and create jobs in America. As Washington administers the postwar reconstruction effort, it must structure rules of origin regulations in line with geopolitics at both the prime and sub-contractor levels.The economic struggle is also taking on larger strategic dimensions as European defense firms seek to grab pieces of the Pentagon budget devoted to rebuilding the U.S. military. On April 25, EADS (European Aeronautic, Defense and Space) announced creation of a new U.S. holding company to acquire more American firms and manage those it already owns. It is particularly interested in buying firms working in the areas of communications, electronic surveillance and intelligence-gathering. EADS is Europe’s largest defense firm and would like to become a prime contractor on Pentagon projects. Last July, it entered talks with Boeing and Lockheed Martin about working on the national missile defense program.Formed in 1999 by the merger of French and German firms, one of its largest shareholders (15 percent) is the French government itself. EADS makes most of its revenue from the commercial Airbus which is the heavily subsidized rival of Boeing. EADS would like to replace Boeing air refueling tankers, on which the projection of American airpower depends, with Airbus tankers. As a weapons-builder, however, EADS is only about one-quarter the size of Boeing. This raises questions about whether EADS could respond in either production or innovation as well as American firms have done in recent crises, even if its political masters were on board.The other major foreign defense firm with an eye on the U.S. market is the French firm Thales. The Paris government is the largest owner, with what is called the “golden share” (30 percent) controlling policy.It would be the ultimate “penny wise, pound foolish” error if American military forces or weapons manufacturers ever became dependent on imported systems. A foreign government opposed to U.S. policy might impose sanctions that could cripple American military operations. Washington does this all the time when dealing with minor states whose armed forces operate, or want to acquire, American systems. This has proven a potent source of leverage, so why should such power be given to other governments?American defense firms have created capabilities well in advance of anything available elsewhere. Their dominance should be preserved as a core objective in national security planning.The Europeans can be expected to use their “soft power” in international agencies to counter or penetrate the traditional elements of American strength. In 1999, the European Commission blocked the merger of General Electric and Honeywell, which would have created an even stronger competitor.European Union Trade Minister Pascal Lamy of France has threatened to challenge the U.S. reconstruction effort in Iraq at the World Trade Organization. This is another attempt by the EU to expand the WTO into a tool of power politics.In another attempt to gain a trade advantage, the EU has drawn up a $4 billion list of WTO sanctions to impose on American products in a dispute over how Washington taxes the overseas profits of U.S. corporations.Multilateral agencies are ceasing to be consensual bodies promoting cooperation and are instead becoming arenas for political struggle. Washington must always play to win, whether the struggle is military or economic, as a great power must excel at both.William R. Hawkins is senior fellow for national security studies at the U.S. Business and Industry Council.


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