ECONOMIC SPOTLIGHT - U.S. DEFICIT WITH NICs

  The U.S. trade deficit with Taiwan and
  Korea is expected to widen this year, despite some economic and
  currency adjustments by the two newly industrialized countries,
  economists said.
      "The surpluses that Taiwan and Korea ran with the U.S. in
  1986 will get bigger. This time next year, the U.S. will be
  screaming at those countries about their exports," said Steve
  Cerier of Manufacturers Hanover Trust Co.
      Taiwan is currently the third biggest exporter to the U.S.
  after Japan and Canada, while Korea is the seventh largest.
      Faced with heightened protectionist sentiment in Congress,
  the Reagan administration has been stepping up the rhetoric
  against Taiwan and Korea, urging those countries to allow their
  currencies to appreciate and lift impediments to free trade.
      The thrust has shifted to those newly industrialized
  countries (NICs) amid signs the dollar's steep drop against the
  currencies of Japan and most EC nations -- previously the main
  focus of the U.S. drive to cut its trade gap -- is beginning to
  close the competiveness gap for American goods.
      U.S. Treasury secretary James Baker said recently that he
  expects a reduction in Japan's trade surplus this year.
      But U.S. manufacturers still are losing markets on their
  own doorstep to Taiwan and Korea, whose currencies have not
  risen as much as the yen and the mark. As major beneficiaries
  of soft oil prices and with low labor costs, Taiwanese and
  Korean exporters are well-placed to take up the slack.
      "In 1986, the fashionable comment in Washington was
  Japan-bashing. Now it's NIC-bashing," said Robert Chandross, of
  Lloyds Bank PLC.
      Asia's four main NICs -- Hong Kong, South Korea, Singapore
  and Taiwan -- accounted for almost one-fifth of the overall 170
  billion dlr U.S. merchandise trade deficit for 1986.
      The U.S. trade gap with Taiwan rose to 15.7 billion dlrs in
  1986 from 13.1 billion in 1985, while the bilateral trade
  deficit with South Korea grew to 7.1 billion from 4.8 billion.
      And preliminary U.S. data show that the growth trend is
  continuing. The U.S. trade shortfall with Taiwan was 1.6
  billion dlrs in January, up 24.4 pct from a year earlier. The
  gap with Korea was 700 mln dlrs, up 24.8 pct from a year ago.
      Lately both nations have said they will take steps to
  defuse incipient trade tensions. Korea said it is choosing many
  of the 122 items on which the U.S. wants it to cut import
  tariffs in order to deflect pressure for currency revaluation.
      Still, South Korean trade minister Rha Woong Bae said last
  week that Korea would maintain a trade surplus for three to
  five years as a way to cut its 44.5 billion dlr foreign debt.
      For its part, Taiwan said in January that it will cut
  tariffs on 1,700 goods sometime in the second half of 1987 and
  try to diversify exports. But vice economic minister Wang
  Chien-Shien said last month that he still does not expect
  Taiwan's trade surplus with the U.S. will fall in 1987.
      The NICs have made deep inroads into markets for textiles
  and electronic goods. But Korea is raising its profile in the
  area of "big-ticket" manufactured goods, notably cars.
      Korea expects its auto exports -- mostly for North America
  -- to balloon to 675,000 units in 1987 from zero in 1985.
      "The NICs' exports are almost all manufactured goods. When
  their exports rise it hits the heart of the U.S. manufacturing
  base. It cuts directly to us and to our customers," said Bob
  Wendt, manager for economic studies at Bethlehem Steel Corp.
      The U.S. takes 90 pct of Korea's computer products exports,
  72 pct of its electrical appliances and 65 pct of its
  telecommunications equipment.
      A recent study by Morgan Guaranty Trust Co says Taiwan and
  South Korea are the most pressing trade issue for the U.S.
      While Hong Kong and Singapore run trade surpluses with the
  U.S., these are offset by their deficits with other countries.
      But Taiwan and, to a lesser extent, South Korea, stand in
  marked contrast. Both of these nations have moved rapidly into
  large bilateral surplus with the U.S. and major overrall trade
  and current account surpluses, the Morgan study says.
      Morgan expects Taiwan's overall trade surplus to grow to
  18.5 billion dlrs in 1987 from 15.2 billion last year, and
  Korea's to increase to 6.5 billion dlrs from 3.5 billion.
      Concern about the NICs is not confined to the U.S.
      "A lot of Korea and Taiwan's exports to the U.S. have been
  at Japan's expense," said Richard Koss at General Motors Corp.
      February's Paris meeting of six major industrial powers
  exorted NICs to lower trade barriers and revalue currencies.
      But this two-pronged approach has drawn little response
  from the two nations so far and, in any case, will only work
  with a sizeable lag, economists say.
      The U.S. has not said how much it thinks the Taiwan's and
  Korea's currencies should climb. The Taiwan dollar, which is
  pegged to the U.S. dollar, has risen about 15 pct since
  September 1985 while the Korean won has risen about five pct.
      But in real terms the Taiwan dollar has been flat against
  the U.S. unit and the won has lost seven pct, economists say.
      "We've not seen any lessening of competition from those
  countries that we can attribute to currency changes," said
  Bethlehem Steel's Wendt.
      And so far, U.S. pleas for Taiwan and Korea to use their
  hefty export earnings to import more have had little effect.
      Moreover, it is uncertain how far U.S. protectionism will
  get given the administration's free-trade stance. "It's hard to
  see that anything will be passed much before year-end. And then
  the question is, will it have teeth?" one economist said.
  

