Japan’s Trade Surplus With Most Asian Countries Is Increasing : Commerce: They must buy Japanese parts for products they make. Some of their currencies have gained against the yen, hurting exports.

The dependence of Taiwan and other Asian countries on Japanese parts used in manufacturing hundreds of products has helped raise Japan’s trade surpluses with almost all of those nations.

Trade imbalances with Japan that declined fleetingly in 1987 and 1988 are once again steadily expanding, bringing home with new force Japan’s position as “factory to the factories of Asia.”

The fact of economic life for Taiwan and most of Asia is that “we cannot do without the parts and components for our products that come from Japan,” said Lei Daoyu, director of the Board of Foreign Trade of Taiwan’s Ministry of Economic Affairs.

For every television set that Taiwan manufactures, it imports a picture tube from Japan. For every air conditioner or refrigerator made here, compressors must be purchased from Japan. For every numerically controlled lathe, a computer control must be procured from Japan. Even bicycle gears must come from Japan.

The pattern is the same for South Korea, where even giant electronics firms do not produce all of the key components in their best-selling exports. Samsung Electronics, the world’s No. 1 manufacturer of microwave ovens, for example, imports 15% of its microwave parts from Japan. Similarly, 10% of a Samsung color TV set and 29% of a Samsung videocassette recorder are Japanese.

In Taiwan, where small firms dominate the economy, the dependency is even greater. All but one of the top 100 items imported from Japan are industrial components, semi-finished products or raw materials for manufacturing.

In Southeast Asia, countries not only depend upon Japan for components. A surge in Japanese investment is spurring imports of entire factories, as well, said Mikio Hoshino, deputy manager of the Taipei branch of Japan’s Daiichi Kangyo Bank.

Thailand, the No. 1 recipient of Japanese direct investment, is experiencing the largest growth in its trade deficit with Japan this year--more than 60%.

Underscoring the strength of Japan’s manufacturers is the fact that their surpluses with both Taiwan and South Korea are growing despite a ban by both countries on imports of Japanese passenger cars, which make up more than 40% of Tokyo’s surplus with the United States.

“If passenger car imports weren’t banned, the surplus (with Taiwan) would be incredible,” Hoshino said.

When exports to Japan surged 53% in 1987 and 25% the following year, Taiwan thought that the days of its perennial red ink in trade with Japan might be ending. It was similar in South Korea. Economists started talking about Japan emerging as a new “market to the world,” supplementing the old one--the United States.

Currency realignments, however, wiped out much of the price competitiveness that spurred the import boom in Japan. The result was that export growth to Japan from many of its Asian neighbors was blunted or eliminated.

Among Asian nations, only Indonesia, from which the Japanese import large quantities of oil and other natural resources, enjoys a trade surplus with Japan. Malaysia, another major exporter of natural resources, is experiencing a slight reduction in its deficit with Tokyo this year.

Elsewhere in Asia, deficits with Japan are growing between 15% and 50%--even as Japan’s global trade surplus, including its black ink with the United States, is declining.

The surplus with Taiwan is heading toward a record $8 billion. With South Korea, it is threatening to exceed the 1987 peak of $5.2 billion.

Taiwan’s deficit with Japan this year will be the equivalent of nearly $400 per capita, compared to the U.S. deficit with Japan of $118 per capita. (Japan’s 1990 surplus with the United States is heading toward $40 billion, a one-year reduction of $8 billion and a $20-billion decline from the peak in 1987.)

In economic terms, Lei said, Taiwan has had little reason to be concerned about its trade deficits with Japan.

“There is no disadvantage in importing from Japan,” he said. “Our firms import components, process and assemble them, and export them, gaining profits from the value added in the process. It’s been good business.”

For years, Taiwan has enjoyed trade surpluses with the United States that have paid for deficits with Japan two and three times over. It has accumulated more than $70 billion worth of foreign exchange reserves in the process. But now, Lei noted, the island’s black ink with America is falling to the point that the surplus with the United States is in danger of being overtaken by the deficit with Japan.

From a peak of $16 billion in 1987, Taiwan’s surplus with the United States fell to $12 billion last year and is headed toward $9.4 billion this year.

“We have promised the United States to reduce our bilateral surplus by 10% a year,” Lei said.

South Korea faces a far worse outlook. This year, its global trade will fall into red ink for the first time since 1985. Its projected $2-billion surplus with the United States won’t make up for even half its deficit with Japan.

As with South Korea, Chinese memories of Japanese aggression during much of the first half of the century make the deficit with Japan a political problem, Lei said.

“If we depend too much on imports from Japan, it upsets the feelings of the people,” he said.

Right now, that dependence is so great that if Taiwan manufactured key components at home, within five years “we could reduce our deficit with Japan by $5 billion a year,” Lei said. That is precisely what the government intends to do, he added.

South Korea, which four years ago undertook a government-promoted program to start manufacturing its own parts, provided the inspiration for that policy, he said.

But if what has happened in South Korea is any indication, the Taiwanese program faces an uphill battle.

Just this month, the Ministry of Trade and Industry in Seoul declared that South Korean manufacturers had “localized” 1,601 items the past four years, saving $3.5 billion a year in imports. But the ministry admitted that nearly 1,800 items originally targeted for local manufacture were still being wholly or largely imported. It announced a new list of 232 more parts it wants to see “localized.”

Both South Koreans and Taiwanese say the appreciation of their currencies against the Japanese yen has hurt their exports to Japan more than anything else. Now that the yen has started gaining value again, they hope that sales to Japan will pick up.

But rapidly rising wages in both countries, as well as in many Southeast Asian nations, have created a new problem in their trade with Japan.

Brand-conscious consumers, who used to focus only on European labels, are beginning to turn to Japanese imports, despite high prices.

“A Taiwan-made panty hose costs only 74 cents, while a Japanese product costs $3. But the Japanese panty hose doesn’t tear and looks better. So women are willing to pay four times as much,” said Daiichi Kangyo Bank’s Hoshino. “Even Japanese-made cookies are becoming popular.”

In Japan, consumer interest in products from the newly industrializing economies evaporated when Japan’s neighbors couldn’t live up to quality expectations and failed to build either a brand image or an adequate service network for their products, he said.

“Gold Star videocassette recorders (from South Korea) sold well for awhile because the price was cheap. But once consumers discovered that the quality was poor and exchange rate adjustments drove up prices, they stopped buying,” Hoshino said.