Great Chicken War may sound funny, but such trade disputes can be deadly

November 06, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Anybody remember the Great Chicken War of 1963?

Most people probably don't. Wars over chickens or oilseeds don't stir the public passion as wars for God and country do. But their consequences can be equally ruinous.

In the Great Chicken War, Europeans were threatening American chicken exports, so President John F. Kennedy rose to the occasion and slapped a 25 percent tariff on Volkswagen microbuses.

Later the war expanded and became known as the Turkey and Brandy War as the Europeans hit another U.S. food bird and Washington took aim at French cognac.

For all its obscurity, the Chicken War could be a guide to what lies in store for the world if the U.S.-European Community spat over a world trade agreement continues.

Like the Chicken War, the current fight could lead to expensive tariffs that stay in force for decades, throttle world trade and penalize hapless consumers.

And that's if we're lucky.

If the fight over the European farm subsidies that diminish U.S. exports explodes into something nastier, discussions about the dull-sounding, but crucial General Agreement on Tariffs and Trade (GATT) could collapse. A real trade war could erupt with consequences this country has not experienced since the Great Depression.

The rich nations would scurry back into regional trading blocks and poor nations would slip off the last rung of the ladder. While few economists think that Europe and the United States will let this happen, the chances for an agreement are receding with each act of brinkmanship.

Yesterday, the United States took the most recent step by announcing a 200 percent tariff on European white wines and some grains.

If it goes into effect in 30 days as planned, consumers can expect the price of French, German and Italian white wines to triple in price.

Nobody's going to go to war over the price of a bottle of wine, but the Europeans have drawn a list of U.S. exports for possible retaliation and the U.S. has a longer list -- up to about a billion dollars worth of other European exports.

If the punitive tariffs continue tit for tat, economists and trade watchers worry that the world economy will be slowly strangled.

"It would be very bad news. Things are fragile enough as it is. The last thing we need is a trade war," said David Munro, who heads the economic forecasting group High Frequency Economics in New York.

GATT was formed shortly after World War II by Western governments eager to avoid the trade wars that deepened the Great Depression.

Many economists believe that the Smoot-Hawley Tariff Act of 1930 helped turn a cyclical slowdown into the 10-year depression, as trade slowed dramatically under the burden of ever-higher tariffs.

GATT, which now has 100 members, has helped lower tariffs from an average of 40 percent in 1940 to 5 percent in 1990, thus making it easier for countries to export.

As the U.S. economy struggles to come out of the longest period of stagnation since the Great Depression, exports aided by GATT's open markets have been one of the few bright spots.

In 1991, for example, exports rose 5.8 percent while the economy shrank by 0.7 percent, according to figures from the Bureau of Economic Analysis. In 1990, exports were up 8.1 percent, while the economy grew by only 1 percent.

These strong exports translated into new jobs at a time when most parts of the economy were laying people off. Last year, for example, exports were responsible for approximately 500,000 new jobs, the bureau's statistics show.

While few argue that exports would dry up entirely if GATT were to die, it has been the only organization able to open up the world's markets over the past decades.

If successful, the current round of talks could help world trade increase by $200 billion a year, or about 7 percent, according to the Organization for Economic Cooperation and Development. Current tariffs already slow world trade by $475 billion a year, the organization reports.

The alternative to GATT, which expired two years ago but remains in place until a new accord is reached, would be #F regional trading blocks, such as the European Community, the North American Free Trade Agreement or the Southeast Asian block.

Neighboring countries would trade with each other but erect high barriers against other parts of the world.

"It's easy to say to hell with GATT, let's have the trading blocks, but it's no real solution. It's a recipe for larger-scale trade wars and Third World instability," said Kathleen Stephansen, a senior economist with Donaldson, Lufkin & Jenrette Inc., a Wall Street investment company.

While trading blocks may help trade between a few countries, GATT regulates trade worldwide. Poorer nations, with no hope of joining a powerful block, get what limited access they have to other countries' markets through GATT.

Without this access, few Third World countries could afford to pay off their debt to Western banks. Poverty, which has increased dramatically in these countries over the past 20 years, would increase and could give rise to more political radicalism.

A recent study by Canadian researchers shows that the Third World would stand to gain $6 billion a year if the current round of GATT talks, called the Uruguay Round, were successfully completed. This is a modest amount, but during a period when most Western countries are cutting their foreign aid, it may be all that the Third World can expect.

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