Other Asian nations see benefits and risks in US-Japan trade war
Asia's emerging industrial nations are interested - and worried - spectators of the brewing trade war between Japan and the United States. In the short term, nations like South Korea and Taiwan may profit from that conflict. They will try to capture Japan's share of certain markets.
In the long term, however, they worry that they will be the next target of America's ire over its trade deficits.
Korea is the Asian NIC (Newly Industrial Country) best situated to take advantage of Japan's woes. Korean-made VCRs and color televisions could replace many Japanese products that will be subject to US retaliatory tariffs. Today $300 million worth of tariffs are to go into effect in response to Japan's alleged failure to live up to a semiconductor trade agreement with the US.
Korea is also the only developing nation producing memory chips, the tiny semiconductors that are the subject of the current US-Japan dispute. Reports from Seoul say that when US Secretary of Commerce Malcolm Baldrige visits Korea next week, he will discuss cooperation in semiconductor production to counter Japanese competition.
Korea's fledgling chip industry, with about 1 percent of the world market in memory chips, is dependent on US and Japanese capital and technology. But Korean companies such as Samsung Semiconductor and Telecommunications are investing huge sums of money - more than $1 billion for the entire industry since 1983 - to climb the technological ladder and ``catch up'' with their teachers.
The Koreans will try hard to encroach on Japanese markets, but they are concerned about what comes next. ``They are worried that after the [trade war] fever is over, Washington will target the other trade-surplus countries like Taiwan and Korea,'' says Chung Jinho, a Seoul-based analyst with Prudential-Bache, a securities firm.
Last year Korea enjoyed a $7.3 billion trade surplus with the US. It could climb to $10 billion this year. Taiwan's surplus with the US hit $15.6 billion, third largest after Japan's ($58.6 billion) and Canada's. The US is already putting pressure on those countries to revalue their currencies, to make their exports more expensive and US imports less expensive.
While the Japanese currency has recently risen more than 40 percent against the US dollar, the Korean won and the Taiwan dollar have floated with the US dollar. The US contends that Korean and Taiwanese currencies are undervalued.
The Asian NICs would seem to share the US concern over Japanese trade practices; they too have big trade deficits with Japan. Last year Korea had a trade deficit of $5.4 billion with Japan, an increase of more than 80 percent over 1985.
``The Japanese psychological capacity to receive foreign goods is very limited,'' Mr. Chung says. ``But,'' he adds, ``we have seen some evidence of change due to the strong yen,'' which has made Korean goods cheaper in Japan.
Overall, Korean exports to Japan rose about 20 percent last year. Korean-made consumer goods such as refrigerators accounted for some 10 percent of the value of appliances sold in Japan last year and could double this year, some analysts believe. Sophisticated products such as VCRs are sold under Japanese names. The Koreans have even made inroads into the Japanese semiconductor market, Chung reports. Since last October, Samsung has captured 3 to 4 percent of the market for the 256 K DRAM, the most common type of semiconductor chip.
A large part of the NICs' trade deficit with Japan is structurally related to their surplus with the US. They import parts from Japan - Korea relies on imported components for 60 percent of its electronic goods - and export the assembled and finished products to the US. The Asian NICs - Korea, Taiwan, Malaysia, Hong Kong, and Singapore - are the main importers of Japanese chips which are assembled in those countries into products or components. Consequently, low-priced Japanese chips, which are the focus of American complaints, are welcomed in the NICs, lowering the cost of their exports to the US.
Officials of Hong Kong, which imports 35 percent of its chips from Japan, have criticized the US for interfering in its trade relations. The US singles out the city as a key ``gray market,'' where cut-price Japanese chips are allegedly traded. No Asian nation has echoed US charges of Japanese chip dumping.
Ultimately, the trade conflict may actually encourage greater cooperation among the East Asian nations. Increasingly Japanese companies are moving production facilities to their Asian neighbors. The high yen, predicts Hiroshi Takeuchi, the managing director of the Long-Term Credit Bank of Japan, will encourage a ``horizontal division of labor'' among them. Together, he notes somewhat ominously, Korea, Taiwan, Japan, and parts of China make up a market equal to the US or Western Europe.