It's not as explosive as the Middle East, but it's a situation potentially just as dangerous for the United States: relations between America and Europe have sunk to a low and bitter point, the unhappy fallout of President Reagan's decision to declare economic warfare against the Soviet Union.
By extending to foreign companies operating under U.S. license the same ban applied to U.S. companies against shipping equipment for use by the Soviet Union in their projected 3,700- mile natural gas pipeline from Siberia to Western Europe, the president has invited a trade war with Europe.
Secretary of State George Shultz will have to plunge very quickly into this hot issue. It boils over at a bad time, when Europe is already agitated by the Commerce Department's action to cut off subsidized European steel exports in an effort to protect American jobs against what is seen as unfair competition.
Underlying the whole tense relationship is a deep economic recession in most European countries, blamed in part on high American interest rates.
A complicating factor is a growing feeling in Europe that the Reagan administration not only doesn't understand Europe's need to maintain friendly commercial relationships with the Russians, but doesn't much care about Europe's perception of the problem. Europe believes that it's necessary to live in peace with the Soviet Union, and that one of the ways of reducing the risks of war is to expand trade with the Eastern bloc. But the Reagan administration seems to be taking the position that the Soviet Union should be isolated, with trade discouraged.
West German Economics Minister Otto Lambsdorff warned an influential and attentive audience--including Shultz--here Tuesday evening that the Western alliance will be confronted with so many far-reaching problems next year, including arms control, that it shouldn't get hung up on such matters as steel and the pipeline.
Interestingly enough, influential elements of the American business community--who normally see eye to eye with the administration's conservative ideology--say flatly that Reagan is mistaken in the belief that he can tighten an economic noose around the Soviet economy with trade sanctions.
A very plain letter to Reagan from Richard Lesher, president of the Chamber of Commerce of the United States, last week pointed out that the "unilateral" placement of export controls on the shipment of goods by a foreign company --and retroactively at that-- "will only aggravate further our international reputation for commercial reliability."
What can the British, the Germans, the Italians and others who face the loss of billions in trade with the Soviet Union because of Reagan's stand on the pipeline do about it?
For one thing, they can thumb their noses at the United States by directing their own companies to fulfill their contracts with the Soviet Union, thereby risking the prospect that the United States will blackball them from future commercial relationships here. The British seem to be moving that way to protect $250 million in Soviet business for one company licensed by General Electric.
For another, as Business Week points out, the United States exports some $52 billion worth of goods to Europe. This provides a favorable surplus of $18 billion for us (about as much as our deficit with Japan). That $52 billion total, the magazine says, is "at risk."
British Trade Minister Peter Rees has already suggested that Europe may look the other way at the multilateral trade talks in Geneva this fall. There the United States will seek support for its proposal to liberalize restrictions on computer and other services, and investments--areas where the United States has a big edge and wants to enlarge its advantage.
The new Wharton World Economic Outlook notes that the administration's actions on both the steel case and the pipeline "have seriously damaged whatever remained of European respect for the postwar system of multilateral trading relationships. . . . Europe will now have all the more reason to go it alone."
One can be sure that the last thing the Reagan White House was thinking of when it hit out against the pipeline was world trade. The focus of the men around Reagan has been much more parochial. That's one of the complaints of our European friends: that this country almost never considers the impact of its actions on the economies of the rest of the world.
For five or ten minutes back in Versailles, when the communiqu,e writers got unanimous agreement on language acknowledging the need to be "sensitive" to the effects of one country's policies on the others, a change seemed to be in the making. George Shultz's job is to breathe some life back into those now-meaningless words.