Americans find it difficult to discuss world trade in a context that does not include the United States. Despite economists' entreaties to emphasize the global nature of foreign countries' economic relations, journalists and others persist in zeroing in on other nations' trade imbalances with the United States. For Japan, this focus has meant enormous U.S. media attention to the persistent surplus that the Asian nation has had with the United States since the early 1980s. Similarly, to the extent that Americans think about South Korean trade at all, they tend to look at the bilateral imbalance, which swung from near equality in the early 1990s to a U.S. surplus in 1995.
This traditional American emphasis has become increasingly dangerous, as events in 1997 illustrated. If policymakers and the general public are to understand the political and economic dynamics of U.S. trading partners, they need to be aware that the United States is not necessarily central to each and every other nation's foreign trade, particularly Asian countries. Japan, for example, now trades more with Asia than it does with the United States. Within Asia, its most important trading partners are the People's Republic of China and South Korea. Hence, an American analyst cannot assume that if South Korean economic difficulties prove to be a minor concern of Washington policymakers, the same would be true for their Tokyo counterparts. In this way, South Korea looms large not just because it trades a great deal with the United States but because it is important to such U.S. trading partners as Japan.
U.S. policy affects, and is affected by, Japan-South Korea trade. For example, American initiatives, such as changes having an impact on the federal budget deficit, influence the yen-dollar exchange rate, which, in turn, affects Japan-South Korea trade and the yen-won exchange rate. When the yen depreciates vis-a-vis the won, as it did in 1996, Japanese goods become more competitive relative to South Korean products in American and other foreign markets, possibly provoking a policy response by the United States.
Global, rather than bilateral, considerations were paramount in the dramatic policy measures taken in late 1997 and early 1998 to help South Korea deal with its economic turmoil. The country's external imbalance is one key to understanding the problems facing it. These troubles were so pervasive that the International Monetary Fund was forced to put together a massive rescue package in December. Washington played a major role in developing the IMF response. The United States obviously has an economic and political stake in the program's success.
*An earlier version of this report appeared in Korea's Economy 1998 (Washington, D.C.: Korea Economic Institute, 1998), pp. 100-105. It is reprinted with KEI's generous permission.
NEW BOJ LEADERSHIP POINTS TO CONTINUITY, CHANGE by Douglas Ostrom
When Masaru Hayami began his term as the head of the Bank of Japan March 20, pundits were quick to applaud his appointment by Prime Minister Ryutaro Hashimoto. Their approval implied that the premier's action was an unexpected but appropriately quick response to the unprecedented scandal that had hit the central bank when a midlevel employee was arrested March 11 on the charge of accepting bribes. Although many aspects of the March events were new, they also pointed to the persistence of tradition in Japan, even in the face of unprecedented challenges.
JAPANESE WORKERS ACCEPT SMALLER WAGE HIKES by Jon Choy
Given the current weak state of the economy and the prospect for more of the same, employers, not surprisingly, had the upper hand in this year's shunto (spring wage negotiations). Union leaders were surprised, however, by the rapid deterioration in their bargaining position as the consequences of the Asian economic crisis became more evident in Japan. With few exceptions, companies offered and workers accepted with little protest smaller pay increases than in 1997. The modest additions to workers' paychecks are unlikely to stimulate consumer spending. In fact, they could deepen the pessimistic mood of the country. Moreover, this year's shunto highlighted the major changes taking place in Japan's labor market, many of which might further increase job insecurity.
JAPANESE PERSONAL SAVINGS DROPPED IN 1997 by Hiroyuki Takahashi
At ¥12.5 million ($104,200 at ¥120=$1.00) at the end of 1997, the typical Japanese family had 2.3 percent less saved than the year before. The drop, the second of the 1990s, was the steepest in the 36 years that the government has been tracking financial assets at the household level. While the Management and Coordination Agency survey results might seem to be at odds with the conventional wisdom that people have started to put away more money to cope with the hard economic times they see stretching ahead, they are not. The decline was the result in part of lower Japanese stock prices. It also reflected the fact that households apparently are keeping more of their savings in cash because of growing worries about the soundness of Japan's financial system.
OPPOSITION PARTIES REGROUP TO CREATE LDP ALTERNATIVE by Barbara Wanner
Looking to mount a more effective challenge to the ruling Liberal Democratic Party in the July upper house elections, four opposition parties in the Minyuren parliamentary group agreed March 12 to join forces. Minseito (Good Governance Party), Shinto Yuai (Amity Party), the Democratic Reform League and a few independents will merge with the 52-member Democratic Party of Japan, currently the largest opposition group, in late April or early May. The "new" DPJ will have a total of 138 members in both Diet houses. That tally dwarfs the numbers of the other opposition parties, but it still is much smaller than the 378-strong LDP.
IMF, JAKARTA NARROW DIFFERENCES; TOKYO PLAYS MEDIATOR ROLE by Eric Altbach
Indonesian President Suharto appeared to signal a softening of his confrontational stance toward the International Monetary Fund March 23 when the government canceled plans to institute a foreign currency purchase tax and Bank Indonesia, the central bank, announced that it would increase interest rates. IMF executives welcomed both moves. They have been pressuring Jakarta to take steps to control inflation and boost the value of the rupiah as well as limit government intrusion in financial markets. At the same time, IMF officials also seemed to be in a more conciliatory mood. Hubert Neiss, director of the Asia-Pacific department, said the same day that the fund would be flexible on government subsidies an increasingly contentious issue, as rising food prices have triggered riots in a number of major Indonesian cities.