VIEWPOINT : Asian Trading Partners Don’t All Look Alike

Through America’s distant monochromatic lenses, Taiwan and South Korea are often seen as little Japans. All three are almost as wealthy as the United States, all three are large international creditors, and all three run huge trade surpluses with both the United States and the rest of the world.

All three should reduce their trade surpluses, open their markets to more American imports and raise the values of their currencies to make their products less competitive on foreign markets and our products more competitive in their markets.

But Japan, Taiwan and South Korea are different, and our expectations of them should be so as well.

While the Japanese economy produces a per-capita gross national product of between $17,000 and $18,000 for 120 million people and is about equal in per-capita terms to that of the United States at current exchange rates, Taiwan and South Korea lag far behind.

Taiwan’s GNP produces $3,000 per person for 20 million people, and South Korea’s GNP produces only $2,000 per person for 42 million people.

When it comes to real standards of living, Japan is not quite as rich as its GNP figures indicate (its domestic industries have not achieved the productivity of its export industries), but both South Korea and Taiwan are still poor developing countries.

Japan and Taiwan have large trade surpluses and have become larger creditor nations. Japan is the world’s biggest creditor and has the world’s largest trade surplus--expected to approach $100 billion in 1986. On a per-capita basis, Taiwan has even more international assets and an even larger trade surplus.

Needed Internally

While the rich Japanese may be foolish to build up such huge international surpluses rather than using these resources to raise the living standards of their people, the poor Taiwanese are almost criminal to use their resources this way.

Taiwan’s trade surpluses could be far better used to import consumption goods to raise the currently low standard of living of its citizens or to import technology and capital equipment to raise the future standard of living.

In contrast, South Korea does not have a large trade surplus, and it is a debtor, not a creditor nation. In 1986, South Korea will for the first time in many years have a modest current-account surplus of about $3 billion.

Because of its past trade deficits, South Korea is also the world’s fourth-largest debtor and owes $47 billion to the rest of the world. To reduce that debt it must have a current-account surplus. Reducing that debt is both a right and a responsibility. South Korea does have a trade surplus with the United States ($1.5 billion in 1985) but it is more than matched by a trade deficit with Japan ($3 billion in 1985).

Japanese economic success is sometimes attributed to “free riding” when it comes to national defense. While the causal connection that is alleged does not exist, the charge cannot even be made in the case of South Korea or Taiwan.

One can wonder about Taiwan’s need to defend itself from an invasion from mainland China, but South Korea has a real enemy in North Korea and spends 6% of its GNP on defense--a sum far in excess of Japan’s 1%.

What then emerges is a very mixed picture. One very wealthy country with large trade surpluses building up huge international credits. One poor country with large surpluses building even larger per-capita international credits. One even poorer country with large international debts and a small trade surplus.

Threaten Trading System

Free trade means that one has a responsibility to buy as well as an opportunity to sell. The Japanese have forgotten this axiom. Their surpluses with the United States and everyone else in the world threaten the viability of the entire trading system.

It is perfectly appropriate for Americans to vigorously remind their trading partners of the need to buy as well as sell and to take whatever actions (lower exchange rates, opening foreign markets) that are necessary to rebalance America’s trading accounts. No country has an obligation to become a net debtor nation, and the United States is foolish to let itself plunge even deeper into debt.

At the same time, every country that successfully sells its products in the U.S. market has not automatically violated some implicit code of good behavior.

South Korea’s success in the U.S. market has not violated any principle of international trade, and its total trade surpluses are not inappropriate to a poor debtor nation that has only recently managed to turn trade deficits into trade surpluses and that has only recently gotten itself on the path toward economic development.

The major economic problem of South Korea is, in fact, the major economic problem of the United States. Neither of us seems able to sell basic manufactured products to the Japanese.

As a result, current American pressures to force South Korea to raise the value of its currency relative to the dollar are ill-advised.

If South Korea were to do so, the trade surplus that it needs to pay interest on its international debts would disappear, and it would be forced off the road to economic development. Countries with more than $17,000 in per-capita GNP shouldn’t force countries with $2,000 in per-capita GNP to forgo further economic development.

In contrast, the Taiwanese should be reminded that they have a responsibility to their own people. If they don’t spend what they earn in international trade on raising the living standards of their people, then there is no reason for the rest of the world to let them pile up such trading surpluses.

To open one’s markets to a poor country that wants to develop is appropriate. To open one’s markets to a poor country that wants to be a miser is inappropriate.