Four fast-growing Asian countries -- Taiwan, South Korea, Singapore and Hong Kong -- must let their currencies appreciate in value by an additional 10 to 15 percent to help reduce their large export surpluses, a senior Treasury official warned yesterday.
Assistant Secretary for International Affairs David C. Mulford issued a thinly disguised warning that if the four newly industrializing countries (NICs) fail to take these and other steps to reduce their trade surpluses, importing nations such as the United States will have to take restrictive action.
Mulford noted that the growth of the NICs as world traders would not have been possible without an open market in the United States. From 1970 to 1986, the U.S. share of the NICs' booming exports rose from 22 percent to 37 percent.
In the same period, the U.S. deficit with the four NICs grew 700 percent to almost $29 billion in 1986, or 20 percent of the U.S. global deficit. In the first eight months of this year, the U.S. deficit with the NICs expanded to $23 billion, second only to the deficit with Japan.
"The NICs are increasingly vulnerable as their export extravaganza continues," Mulford told a capital markets conference in San Francisco.
"One way or another, the U.S. trade deficit will be reduced, and eventually, eliminated. All principal trading nations ... have to contribute to that end. This means that the Asian NICs' surpluses will be reduced in absolute terms," he said.
Mulford said "frustrated" members of Congress, responding to business complaints of predatory trade practices -- especially by Taiwan and South Korea -- are pursuing a protectionist response that the administration is resisting.
But implicit in Mulford's remarks was that if the NICs continue to ignore the policy changes recommended by the administration, it may be impossible to block undesirable legislation.
"We are frankly concerned by the lack of responsiveness to our approach and by the meager results that have been forthcoming," Mulford said in his speech, the text of which was released here.
"This is particularly serious in exchange rate policy, which, if there were a spirit of cooperation, could be adjusted quickly to respond to an obviously deteriorating situation," he said.
Mulford's complaint was that by keeping their exchange rates undervalued, the NICs have unfairly boosted exports and accumulated "unjustifiable" current account surpluses and monetary reserves.
In addition, he was critical of Taiwan and South Korea for pursuing restrictive trade policies.
He also assailed economic and structural policies in Taiwan and South Korea that he said are designed to swell trade surpluses.
He cited tax exemptions, operating subsidies, financial bailouts, and failure to protect foreign patents and copyrights as among those policies.
The result, he said, is that Taiwan this year will have a current account surplus of more than $19 billion, "a staggering 20 percent of gross national product." With no external debt, Taiwan's cash reserves have more than tripled since the end of 1985 to $70 billion -- roughly as large as Japan's.
"Korea is coming up hot on Taiwan's heels," Mulford said. The Korean current account surplus will exceed $10 billion this year, or about 8 percent of GNP, dwarfing (in relative terms) those of Japan and Germany, each of which will have a current account surplus of about 4 percent of GNP.
"Apparently embarrassed by its new riches, Korea -- a country with a $2,400 per capita income -- has begun a concessional foreign assistance program," Mulford said.
"One is tempted to assume that creating such a program is easier for Korea than adjusting its own economy to push for a higher standard of living for Koreans. Will this aid program be used, as we have seen elsewhere, to develop additional export markets?"