A Trading Region Comes Of Age In The Pacific

With Japan and Europe still mired in recession and growth slowing in Latin America, it may be only a question of time before the buoyant developing economies of the Pacific Rim begin to lose steam as well. Economists at American Express Bank Ltd. in London argue, however, that the so-called newly industrialized countries (NICS) and their fast-growing neighbors should ride out the storm with little pain. A major reason: surging intraregional trade.

As recently as 1986, notes an article in the monthly Amex Bank Review, intraregional exports between China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand amounted to only 20% of their total exports (not counting Chinese exports to Hong Kong, which are reexported). But from 1986 to 1992, as export booms spread among the less prosperous members of the nine-nation group, their trade with each other jumped by 58%, or roughly twice as fast as their exports to Japan and the U.S.

The result has been a dramatic shift in trade flows. Intraregional exports--ranging from oil and foodstuffs to machinery parts and consumer appliances--now account for 30% of the group's total exports. In fact, they currently exceed both its exports to the U.S. and its combined shipments to Japan and the European Community (chart).

All of this brightens the near-term economic prospects of the export-driven Pacific Rim nations. As Amex economists see it, the growing importance of intraregional trade has bolstered the group's self-sufficiency and is cushioning its vulnerability to the slumps in Europe and Japan. Because Pacific Rim exports to each other and to the expanding U.S. economy are far larger than exports to Japan and the EC, Amex economists believe the group can continue to post relatively strong growth.

The economic implications for the group's industrial trading partners seem more mixed. The Pacific Rim nations account for only a small fraction of European exports, and the EC continues to run trade deficits with the area.

For U.S. exporters, on the other hand, the Rim has provided fast-paced demand growth--notably for industrial materials, agricultural products, and capital goods. But the problem for the American economy is that its imports from China and Taiwan far exceed its rising exports. Until there's more balanced trade with China and Taiwan, the U.S. will suffer a significant trade deficit with the region as a whole.

Indeed, according to economist Tony Riley of A. Gary Shilling & Co., only Japan among advanced nations emerges as a clear beneficiary from the Pacific Rim's growing self-sufficiency. He notes that Japan's trade surplus with its neighbors now exceeds its surplus with the U.S. "The Pacific Rim," he observes, "benefited from a huge infusion of Japanese direct investment during the 1980s." And the region is now paying back that investment by providing a ready market for Japanese capital goods and other products.

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