Like the temperature in August, the trade surplus of the ROC with the United States has been rising daily. And with each increase, local officials and businessmen sweat a little more, because it means the U.S. will increase pressure for the continued rise of the NT dollar.

How can a surplus bring trouble?

"Because one man's surplus is another man's deficit," says the Vice Minister of the Ministry of Economic Affairs, Wang Chien-shien. "And over the long run as industry is hit and workers lose jobs, the other party will of course come looking to reckon up the bill."

In the face of this pressure, there have been frequent calls to diversify trade in terms of both products and markets. Pien Yu-yuan, Professor of the Department of International Trade at National Taiwan University, notes that West Germany has avoided being a target for trade retaliation despite having the world's largest trade surplus because of diversification. Less than ten percent of its total trade goes to the U.S., compared to almost half of all exports for Taiwan.

Nevertheless, calls for trade diversification have had little impact.

The Director of the MOEA's Board of Foreign Trade, Vincent C. Siew, points out that ROC exporters continue to focus on the U.S. market for several reasons. First, as the world's largest market, it is a natural target. Further, the U.S. market remains the world's most open. That Taiwan products flow predominately to the U.S. is "like water flowing downstream."

But Andrew Tsuei, Executive Director of the Union Group of Companies, while agreeing with Siew's metaphor, thinks the government can use financial and other incentives to act as "pumps" to rechannel the "water." Possible alternative routes could include lifting restrictions on trade with Eastern Europe and opening trade discussions with Western Europe.

But this strategy cannot be a permanent solution. The new target markets may soon object, as Siew notes. For example, under the impetus to diversify, and with the benefit of a fall of the NT dollar against European currencies, the ROC's trade surplus with Europe more than doubled. And while reliance on the U.S. market was at the same time falling from 48.1 percent of the ROC's exports to 47.7 percent, it was not long before the Common Market announced an investigation into charges of "dumping" by the ROC's footwear industry; moreover, the European bicycle, motorcycle, and metal zipper industries also expressed complaints.

Vice Charman Yeh Wan-an of the Council for Economic Planning and Development notes that "If we only try to diversify, and do not seek balance, this will generate opposition."

The CEPD plans that in the year 2000, when Taiwan is expected to join the ranks of the developed nations, the total trade surplus should only be about US$2.36 billion per year; at that point expenses and earnings will nearly be in balance.

Besides this, the BOFT, in May of this year, put out a "Development Plan for Balancing Foreign Trade," which broke down the world into various categories (depending on the nature of their trade balances with the ROC) and offered different balancing proposals.

And Chiang Ping-kun, Secretary-General of the China External Trade Development Council, says, "Under the new trade situation, the Association's role has begun to change. Now our two major trade situation, the Council's role has ing trade."

So with all this effort, why does the trade surplus keep going up?

"The trade surplus is caused by the economic structure, and balance is impossible," says Vincent Lin of Fu Jen University's Department of International Trade.

"Taiwan is so small," adds Vincent C. Siew, "The trade surplus is helpful in expanding the domestic market and speeds economic development. . . . But it generally has some adverse side-effects, so we should slow it down a little."

Among the various suggestions to "slow down" is that of the Chairman of the Formosa Plastics Corporation, Wang Yung-ching: The government should negotiate with the U.S. and levy export taxes to reduce the competitiveness of ROC products and thus reduce the trade surplus.

Andrew Tsuei notes that such a proposal is not unfeasible, but is likely to create disputes. Nevertheless, he admits, it would be helpful to government revenues and, "In theory, it is practicable."

But others say that "there's no need to cut down on eating just because one is fat." Chiang Ping-kun argues that exports should not be sacrificed to balance trade. "I have calculated that our exports will have to increase twenty percent a year, in order to give everyone a good job and raise the standard of living."

So if one is not going to "eat less" then one has to "exercise more."

Wang Chien-shien proposes that the "ideal solution is to increase domestic willingness to invest and consume, and thus raise imports."

Currently the rate of savings in the ROC is 37.4 percent of GNP, while investment is only 16.3 percent, a difference adding up to one-fifth of GNP.

There are two ways to eliminate this disparity: increase investment or reduce savings.

The savings rate is the world's highest. Wang Chien-shien points out that many people still have traditional attitudes toward thrift, that the inadequate social security system means people must prepare for the future, and that high tariffs have discouraged purchases of imports.

Now, things are changing. Premier Yu Kuo-hwa has announced that the government will expand social assistance, and hopes to reach the ideal of complete national health care by the year 2000. As for tariffs, besides the great extent to which they have already been lowered, the CEPD has prepared a schedule to further lower them within three years to about three percent, comparable with current OECD levels.

Others suggest that mere consumption is not very "constructive," and advocate more public spending. The CEPD has already begun to set up a "Public Construction Data Bank," and has chosen twenty-one key future construction projects whose plans are to be displayed there.

Besides more exercise, our "fat" person also hopes to improve the quality of food that he eats. Some reckon that the weaker, less competitive export industries could be weeded out. Yeh suggests that such weeding out could come through increasing pollution control requirements, or asking for larger capital bases.

Siew concludes, "The golden age of mass production is over. . . . In this stage we should not continue to seek high growth, but should speed up improvements in the productive structure. This is the beginning of a new era."

Foreign Trade of the ROC

[Picture]

Source: The Council for Economic Planning and Development, Executive Yua n.

[Picture Caption]

Is there really no way back from the massive trade surplus?

The U.S. has every kind of person; it's a market for every kind of product. (photo by Vincent Chang)

Opening up the domestic market is one of the areas where the ROC is striving to balance trade.

ROC machine products have already become the target of European and American requests for "self-limitation."

(Left) Speeding up public investment is one no-lose way to help solve the problem of an excessive trade surplus.

(Right) Some industries developed in the rush to export, like raising shrimp in underground streams, have some negative side effects (in this case environmental damage). With its massive trade surplus, the ROC can now afford to take a new look at such industries.

(photo by Arthur Cheng)

The purpose of economic development is not to pile up a mass of useless currency, but to improve the quality of life.

The U.S. has every kind of person; it's a market for every kind of product. （photo by Vincent Chang）

Opening up the domestic market is one of the areas where the ROC is striving to balance trade.

ROC machine products have already become the target of European and American requests for "self-limitation.".

（Left） Speeding up public investment is one no-lose way to help solve the problem of an excessive trade surplus.

Right） Some industries developed in the rush to export, like raising shrimp in underground streams, have some negative side effects （in this case environmental damage）. With its massive trade surplus, the ROC can now afford to take a new look at such industries.

The purpose of economic development is not to pile up a mass of useless currency, but to improve the quality of life.