Dollars could be in the air

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The Independent Online
FROM L'Affaire Airbus, we glean some intriguing insights into the Clinton administration's thinking on trade and economic strategy. Trade retaliation seems not to be what the President has in mind for sheltering Boeing and McDonnell Douglas from European competition. But what about matching subsidies?

That Mr Clinton wants to do something - anything - to help his civil aviation industry, both aircraft manufacturers and airlines, is beyond doubt. The main carriers have clocked up losses exceeding dollars 10bn since 1989; Boeing has announced plans to lay off 27,000 by mid-1994. And it is also a sector redolent with patriotic symbolism.

When Mr Clinton first began to mutter about the subsidies ploughed over the years into Airbus (the White House has come up with a figure of dollars 26bn), there was an immediate assumption on both sides of the Atlantic that he was preparing to retaliate and renounce the subsidies truce reached between Brussels and the Bush administration a year ago.

But with each pronouncement on the subject it has become clear that the President does not, after all, mean to provoke a trade war over Airbus, even though he has asked Mickey Kantor, the US Trade Representative, to explore the possibility of amending last year's pact to reduce subsidies further. Instead, he has at times sounded almost admiring of Europe's Airbus strategy. The problem for US companies like Boeing, he implied during a press appearance last week with President Mitterrand of France, was that Washington had not responded with subsidies at home. 'Europe was able to penetrate this market because of the Airbus policy,' he said. 'And the blame I placed was on our government for not responding - not Europe's for trying to get in. That was their right.'

He went on to say that last year's subsidies agreement gives the United States 'the opportunity to significantly invest in the development of new technology for new generations of aircraft'. To Boeing executives, this sounds like a promise of federal money if they have ever heard one. Just how far Mr Clinton can go in funding the aerospace industry remains to be seen. So far, his economic programme foresees only a dollars 550m increase in aeronautics research at Nasa. And a White House source warned that the President 'would be cautious about matching subsidy for subsidy; that's not what we're about'.

None the less, the picture that is gradually emerging is one that spells two words not much uttered in this city over the past 12 years: industrial policy. While his administration shies away from any notion that it is getting back into the old business of picking winners and losers, the President over recent weeks has identified plainly those areas he hopes to nurture with the help of some old-fashioned government intervention: namely new technologies, for which he has earmarked some dollars 17bn in tax breaks and spending programmes - and the aerospace industry.

Much of that hi-tech money will be spent on the programmes for converting the defence industry to civilian production. In a speech at Baltimore on Thursday, Mr Clinton again tried to explain his vision of renewed partnership between government and business, which falls somewhere between the old models of state interference and the laissez-faire approach of Bush and Reagan.

'The private sector is the engine of lasting economic growth in our system,' he said, 'and therefore our plan must help our companies to make these transitions to compete and to win. We seek to go beyond the debate of the past, in which some thought government alone could do everything and others claimed government could do nothing.'

Talk of industrial policy is even becoming fashionable again. A poll of US business leaders released last week revealed that three out of four thought some kind of national industrial policy was 'critical' to sustaining the economic recovery.

Vice-President Al Gore confirmed last week that civil aviation is of particular concern to the administration. 'We want to arrive at a thoroughgoing strategy for restoring the health of the aerospace industry,' he said. But in a sure sign that it has no ready answers, the White House has backed creation of a congressional commission to study the sector's problems - an easy way to buy time.

Helping aircraft manufacturers may be easier than finding solutions for the struggling carriers. Even between them, there is little common ground. While the big three, United, Delta and American, are fighting to end the Chapter 11 bankruptcy protection given to their strapped competitors, and to block overseas investment (witness British Airways' frustrations at USAir), the weaker companies such TWA and Northwest need both the investment and the protection from creditors. The airlines are united only in recoiling from the proposed energy tax that may add dollars 1bn to their annual fuel bills.

For the airlines, in the end, the Clinton administration may be able to offer little more than the promise of a long-term strengthening of the economy - and with it the prospect of fuller aircraft. At Boeing and McDonnell Douglas, however, they can already hear the faint rustle of fresh federal dollars.

Bailey Morris is on holiday