But Binge May Not Help Trade Imbalance : Affluent Taiwanese Are Snapping Up U.S. Goods

From Reuters

As tariff barriers fall and the local dollar soars, Taiwan’s affluent consumers are snapping up U.S. products from Cadillacs to cornflakes and helping to trim the island’s embarrassingly large trade surplus.

Taipei’s narrow alleyways are crammed with new Oldsmobiles, Buicks and Cadillacs, reflecting a massive surge in U.S. auto sales on the island.

“We could have 50% of the new passenger car market in a couple of years. That’s probably more than we have in California,” said a U.S. trade official who asked not to be identified.

But with a population of only 20 million, Taiwan is finding that it will take more than surging consumer imports to placate Washington.


“How many cars can we buy?” asked Hou Chia-chu, a professor of economics at Soochow University.

Taiwan was the United States’ fifth-largest trading partner last year and racked up a surplus of $13.4 billion, the second largest after Japan’s, according to U.S. figures.

American fury over the size of Taiwan’s surplus has led to intense pressure on Taipei to open its markets, and officials have had to try to satisfy U.S. demands without seeming to betray the island’s own businessmen.

Despite its size, Taiwan’s U.S. trade surplus declined 16% last year and there are signs it will continue to fall. In January, Taiwan’s surplus was $1.12 billion, down $70 million from a year ago.


Since 1986, Taiwan has cut average tariffs to 5.5% from 7.6% and allowed the Taiwan dollar to soar by 43% against the U.S. dollar.

“It’s hard to see how they can say we are still being so unfair,” Hou said.

One result of the changes has been the “Buy American” shopping spree. U.S. figures show that sales of American-made television sets jumped by 330% in the first eight months of last year, while washing machine sales soared by 235%.

“Everybody’s buying--it’s so different from two years ago,” said one dealer of White-Westinghouse appliances.

During the same period U.S. car sales increased by 256%.

But both sides realize that Taiwan’s limited consumer market cannot alone redress the trade imbalance.

U.S. officials hint that the island may be a candidate for retaliation under section 301 of the Omnibus Trade and Competitiveness Act, which says the United States will impose sanctions on countries it believes continue unfair trade practices.

“Taiwan’s done something, but they’re going to have to do a lot more,” the U.S. trade official said.


Washington remains frustrated as U.S. companies strike out on big-money contracts for government development projects and heavy industry despite the official “Buy American” policy.

Taiwan’s antiquated banking and insurance industries are gradually opening to foreign competition, but U.S. officials complain that the pace seems glacial. Limits on agricultural imports continue to slow the sale of American farm goods.

U.S. impatience burst forth earlier this month when Washington’s top diplomat in charge of handling unofficial relations with Taipei again charged the island’s central bank with manipulating the exchange rate.

In a last-ditch attempt to cool U.S. anger before the first countries are targeted for 301 retaliation this spring, two of Taiwan’s top negotiators recently flew to Washington with a plan to reduce the island’s trade surplus.

Under the plan, Taiwan will continue to slash import tariffs until they reach an average 3.5%, further open its insurance industry and step up official purchases from the United States.