The U.S. typically grants foreign countries "most favored nation" trading status unless they're run by man-eating Communists. This signifies that they have normal economic relations with the world's greatest financial power and are subject to the same tariffs and legal treatment as peers when their goods enter the country.

After its unpopular pursuit of the Iraq war, however, not to mention high-profile corporate scandals ranging from Martha Stewart to Tyco ( TYC), the U.S. now appears to be gaining the status of "least favored nation" around the world as trading partners re-envision their relationships through the prism of animus and distrust rather than amity.

The most recent example came last week when the European Union slapped a record antitrust fine against Microsoft ( MSFT), one of America's leading technology companies, for reasons that seem animated as much by anger and suspicion as by a strict reading of law.

Yet other examples of the international turn of the screw are becoming apparent, and that should worry investors in U.S. multinational-branded manufacturers and retailers such as Coca-Cola ( KO), Ford ( F) and Starbucks ( SBUX).

Poll: U.S. Popularity Plunges

Not long ago, market research firm RoperASW conducted a survey of 30,000 people in 30 countries that sought to determine foreigners' opinions of the U.S., and found they had undergone a historic plunge.

According to a report in the magazine American Demographics, the survey found that only 15% of Indonesians, for instance, felt very favorable or somewhat favorable toward the U.S. That's down from 61% who held that view a year ago.

Not surprisingly, Islam-dominated countries had the greatest jump in negative vibes toward things American. But the number of Russians who saw the U.S. in a favorable light also sank 25 percentage points in a year, while the share of French, Germans and Italians with positive feelings toward America fell by 20, 16 and 10 percentage points, respectively. The magazine said the study pointed out that Canadians and the British likewise felt less positive toward the U.S. than in the prior year.

Worse in many ways for American multinationals is the increasing number of global consumers who told surveyers they felt "distant" from American culture: There was an average jump of 2 percentage points from 1999. The strongest increases were in Taiwan (20-point jump), Argentina (17), Thailand (13) and France (10).

Meanwhile, the integrity of American business leaders also has come under attack. RoperASW reports that when survey respondents in foreign countries rank their trust in leading companies worldwide, American organizations now cluster at the bottom of the list.

Even Latin America, long a bulwark of support for U.S. products, has begun turning against American economic might, with resentment over Iraq bubbling over into open criticism of immigration policies and an attempt to block a new hemispheric trade agreement. Brazil's ambassador to the U.S. told The New York Times in January that his country feels "severely penalized" by U.S. restrictions on his country's steel and agricultural products.

Watch the Top Line

In addition to these obvious sources of distrust, there appears to be a growing sense of unease overseas about the growing extension of U.S. military power in their lands. According to a new book by Chalmers Johnson, a University of California-San Diego professor, the Pentagon now occupies 702 bases in 130 countries on every continent but Antarctica.

In the book The Sorrows of Empire , Johnson says Americans do not recognize the extent to which their country has created a global "baseworld" of garrisons that intrude on trading partners' activities through a vast network of soldiers, spies, technicians and civilian contractors.

While such discomfort may make it harder for American manufacturers to sell the stateside sizzle on products such as Nike sneakers to the world's emerging middle classes, it is doubly hard for them to overcome poor publicity when things go wrong.

Coca-Cola discovered this the hard way in early March when it was forced to abandon the scheduled rollout of its Dasani bottled water in continental Europe after a botched launch in the U.K. The company yanked Dasani from British store shelves last week after being pilloried for its revelation that not only was the product merely "enhanced" tap water, but it also contained abnormal amounts of a chemical called bromate that can harm people who consume it regularly over an extended time.

If there has been a deterioration in American companies' overseas income, it will probably be masked in the upcoming earnings season by the extreme weakness in the dollar. When the dollar is cheaper than the euro, yen, rupee or zloty, U.S. goods cost less in foreign countries, boosting sales. So when first-quarter reports start pouring out next month, investors should pay special attention to big companies' international top line, not earnings, for signs of potential deterioration.

Goodwill Seemingly in Short Supply

Of course, it is possible that negative views will not last much longer and that a swing back in favor of U.S. popularity is overdue.

Mark Headley, portfolio manager at the Matthews Funds and an expert on the Chinese, Korean and Japanese markets, says his contacts distinguish between American consumer products and American politics. "Most Asians I talk to hate Bush's policies -- absolute antipathy," he said.

"In South Korea, they think he has made the Korean peninsula more dangerous. In China, they think he has goaded the Taiwanese to be more independent and confrontational. Anywhere there is a Muslim population, they are extremely unhappy with his policies across the board. And in Japan, there are tremendous misgivings about sending troops to a forward deployment for the first time since World War II. But none of this has stopped Chinese accountants or factory managers from buying cool new Motorola phones or stopped the Japanese from eating at McDonald's."

If you go beyond the consumer to the wholesale and distribution level, though, Headley says American companies are losing their "edge of goodwill" when competing against European or Asian companies for contracts ranging from airliners to concrete.

"In Korea and Japan, they have always liked American troops for their stabilizing influence, but that has evaporated," he said. "They now see us as untrustworthy, don't understand our actions and blame us for the breathtaking rise in the price of their most expensive imported product -- Middle Eastern oil."

Headley said the greatest danger is that rising resentment has pushed the moderates in Muslim-dominated democracies to act more anti-American to keep pace with their constituencies.

Companies that might potentially feel the greatest pain would be the ones that currently enjoy the greatest success: Altria Group ( MO), maker of Marlboro cigarettes; Coca-Cola; and Procter & Gamble ( PG).

In contrast, large-cap companies that could feel the least impact would be ones with the smallest exposure to foreign consumers or wholesale buyers, such as homebuilders, utilities, health-care insurers and specialized retailers. I've listed five in the following table.


Isolationist Plays
Large-caps with relatively little overseas exposure
Company Market Cap (billions) March 30 Close
Symantec (SYMC:Nasdaq) $14.3 $47.26
Anthem (ATH:NYSE) 12.1 90.57
CenterPoint Energy (CNP:NYSE) 3.4 11.35
Pulte Homes (PHM:NYSE) 6.8 55.71
AutoZone (AZO:NYSE) 7.2 85.87
Source: MSN Money

American companies' loss of international appeal could lead to gains for their European and Asian counterparts. Indeed, if you can visualize a future tipping point of distress -- such as a Pentagon raid on Iran or other aggressive American geopolitical initiatives -- it might even make sense to consider "pairs trades" in which one would go long a foreign multinational such as Toyota Motor ( TM) and short a U.S. equivalent, such as General Motors ( GM).

That may seem extreme, but traders may decide they prefer to drive with world traffic than to follow the Stars and Stripes into harm's way.
Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdmmail@fastmail.fm. At the time of publication, Markman had positions in the following securities mentioned in this column: Starbucks, Symantec and Microsoft.

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