October 27 , 2004-13

Copyright © 2004 Earth Policy Institute

FOREIGN POLICY DAMAGING U.S. ECONOMY

Lester R. Brown

Last week I spent two days at an international conference of parliamentarians in Strasbourg, France, with delegations from some 81 countries, and two more days at the European Parliament in Brussels. Although I was invited to talk about population, food, water, climate change, and energy, the question-and-answer sessions and the individual conversations invariably turned to U.S. foreign policy.

Elected representatives from other countries are not only bewildered by a U.S. foreign policy that they cannot fathom, but increasingly they are angered by it. The America they now see is not the America they once knew.

Elected officials are not the only ones upset with U.S. foreign policy. Anti-American sentiment is spreading throughout the world. In March of this year, the Pew Global Attitudes Project reported that, “A year after the war in Iraq, discontent with America and its policies has intensified rather than diminished.”

The Pew polls show that “the war in Iraq has undermined America’s credibility abroad,” and that “there is broad agreement in nearly all the countries surveyed … that the war in Iraq hurt, rather than helped, the war on terrorism.”

Not only is the arrogance of U.S. unilateral decisionmaking deeply resented, but in many countries, the United States is no longer viewed as trustworthy. Now the rejection of American foreign policy is translating into a rejection of products with U.S. brand names. Europeans are in effect holding an economic referendum on U.S. foreign policy, voting with their pocketbooks. The effect of this can be seen in the third quarter earnings reports now coming out for several leading U.S. corporations.

Worldwide, eight of the ten leading product brands are American. More than half the sales of each of these brands are outside of the United States. John Quelch, professor at the Harvard Business School, says, “A deepening opposition to American foreign policy is threatening the long-term strength of these brands.”

The Financial Times reports that some of the world’s strongest consumer brands, like Coca-Cola, McDonald’s, and Gap, are being hit hard. Coca-Cola sales in Germany dropped 16 percent from the similar period last year and the company is writing off $392 million “to reflect impaired business assets there.”

McDonald’s, a corporation with a remarkable historical growth record, has seen its sales come to a near standstill across Europe. Gap has pulled out of Germany entirely, a move that has helped to reduce its international sales by 10 percent. Falling attendance at Disney’s theme park outside Paris dropped revenues to where it had to be rescued by its parent company. Wal-Mart, the world’s most successful retailer, is facing heavy losses in Germany, which is the world’s third largest economy after the United States and Japan.

Sales of automobiles made by GM and Ford are also suffering in Europe. With losses of $236 million in the region, GM is laying off 12,000 workers in Germany. Ford may soon follow with layoffs.

Not wanting to feed the anti-American backlash, companies typically blame economic conditions for their declining sales, but the International Monetary Fund estimated in September that Germany’s economic growth this year would be 2 percent, a much better performance than its negative growth last year. In France, another country where U.S. products are taking a beating, growth is projected at 2.6 percent, compared with 0.5 percent a year ago.

The decline in sales and earnings of U.S. companies abroad is most evident with the leading name brands cited earlier, but the acceptance of U.S. brand products is declining across the board. Other well-known brands where consumer approval abroad is declining include Microsoft, Nike, and Yahoo. But much more is at stake than name brands. The economic fate of thousands of U.S. companies operating internationally will be affected.

The indirect effect of the Iraq war on the U.S. economy may soon become a major issue. Quelch shares this thinking, noting that, “the cost to the American economy could be far greater than the cost of the war.”

This downturn in sales of U.S. products abroad will likely touch all Americans in one way or another. Within the United States, it will affect job creation and the stock market. It will affect the holdings of some 90 million individual investors, the market value of both mutual funds and pension funds, and the retirement income they generate. It will likely reduce the cash flow of the endowments that foundations rely on to provide grants and that universities rely on to help cover operating costs.

I’ve been traveling abroad for nearly 50 years, ever since sailing from New York to Bombay to spend the last half of 1956 living in Indian villages. At no time during this period have I encountered the level of concern about U.S. foreign policy that exists today. While it is too early to see clearly all the long-term effects of U.S. foreign policy, some of the economic fallout is becoming disturbingly clear.

Copyright © 2004 Earth Policy Institute

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FOR ADDITIONAL INFORMATION

From Earth Policy Institute

Lester R. Brown, Plan B: Rescuing a Planet Under Stress and a Civilization in Trouble (New York: W.W. Norton & Company, 2003).

Lester R. Brown, Janet Larsen, and Bernie Fischlowitz-Roberts, The Earth Policy Reader (New York: W.W. Norton & Company, 2002).

Lester R. Brown, Eco-Economy: Building an Economy for the Earth (New York: W.W. Norton & Company, 2001).

From Other Sources

International Monetary Fund, World Economic Outlook: The Global Demographic Transition (Washington, DC: September 2004).

Pew Global Attitudes Project, “A Year After Iraq War: Mistrust of America in Europe Ever Higher, Muslim Anger Persists” Pew Research Center for the People and the Press, 16 March 2004.

Dan Roberts, “US Brand Giants Suffer A Sales Slump in ‘Old Europe’,” Financial Times, 25 October 2004.

Dan Roberts, “US Icons Lose Their Cool in Europe,’” Financial Times, 25 October 2004.

Sean Silverthorne, “Will American Brands Be A Casualty of War?” Harvard Business School Working Knowledge, 21 April 2003.