EAST ASIA: SOME ECONOMIC EFFECTS OF THE WAR IN VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600020020-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 22, 2016
• Document Release Date: May 17, 2010
• Sequence Number: 20
• Publication Date: February 1, 1969
• Content Type: IM

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2
OF
INTELLIGENCE
Intelligence Memorandum
East Asia: Some Economic Effects of the War in Vietnam
-DAMMM~
wwwo
ER IM 69-18
Febrpary 1969
Copy No. 6 3
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ccipt by an unauthorized purson is prohibited by law.
0110u' I
txekutM[I YH(IN AUTOMATIC
I('L(1, " I'M All
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SECRET
Foreword
This memorandum concerns the effects of the
Vietnam war on the Free World economies of East
Asia, except for the war economies of South Viet-
nam and Laos. The first step of the analysis is
to identify the increase in US dollar expenditures
in East Asia that resulted from the war in Viet-
nam. In addition to these direct effects of the
Vietnam war, there were also all sorts of indirect
effects. Some of these can be related to identi-
fiable trade flows. The war-induced increase in
incomes and prices in the United States resulted
in a rapid increase in US imports, from which
Japan benefited. Increased dollar earnings in
East Asia, excluding Japan, stimulated Japanese
exports to that area. Rough calculations of these
indirect effects on the Japanese economy have been
made. There has been no attempt, however, to
estimate indirect effects of this type in other
East Asian countries, because they appear to be
too small to be separated from all the other
determinants of foreign trade. Other types of
indirect effects are those resulting from the
influence of the war on government policies in
the area. For example, the policies followed by
the Cambodian government in response to the war
resulted in the cessation of US aid to that coun-
try and iti partial substitution by Communist aid.
The war may have increased or diminished the ex-
penditures various countries have needed to combat
insurgencies. Effects such as these are highly
complex, however, and any attempt to quantify them
would be not only extremely difficult but also
extremely speculative. Therefore, all such effects
have been ignored.
This memorandum covers the years 1965-68. Many
of the statistical calculations, however, begin in
1966 because it was not before that year that the
large US military buildup began. It also covers
the following countries: Australia, Burma, Cam-
bodia, Hong Kong, Japan, Indonesia, Malaysia, New
Zealand, Philippines, Ryukyus, Singapore, South
Korea, Taiwan, and Thailand.
SECRET
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SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
February 1969
East Asia: Some Economic Effects
of the War in V etnam
Summary
Beginning in 1966 the United States markedly
increased its expenditures related to the war in
Vietnam. But while billions of dollars have been
spent on the war since then, only a small part of
the total has been spent abroad. In consequence,
the effect on the rest of the world has been
relatively small, a great contrast with the
Korean war period, when prices of primary products
skyrocketed in response to war-related demand,
greatly raising incomes in less developed coun-
tries, including those of East Asia.
Nevertheless, there has been a substantial
flow of dollars to the countries of East Asia
that can be attributed to the war. While the
amount and effect of this spending varies from
country to country, in no case has it been large
enough to have been an important determinant of
economic growth. Thus the decline and ultimate
end of US spending related to the Vietnam war
will probably have only a minor negative impact
on the economies of East Asia. The major growth
determinants in the next few years will continue
to be the same as they have been in the past --
that is, relatively prudent economic policies and
the continued expansion of exports to the United
States and Japan.
In 1968, direct US war-related dollar expendi-
tures in East Asia amounted to about $1 billion.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current
Intelligence and the Office of National Estimates.
SECRET
25X1
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NO'PT.1
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Economic Growth in East Asia
1. In order to estimate the impact of the
Viet-am war on the economies of East Asia --
excepting South Vietnam -- it is essential to
identify the main factors that determined economic
growth prior to the intensification of the war.
Two determinants can be singled out: the generally
prudent economic policies pursued by most of these
countries and the expansion of the US and Japanese
economies.
2. It is Lifficult to overstate the roles
played by the United States and Japan in East
Asian economic growth. The United States provides
the prime stimulant as the largest export market
for the region's manufactures and raw materials
and as the principal supplier of investment funds
and economic aid. Japan is the only East Asian
country capable of producing the wide range of
manufactured goods sought by countries in the
area and, in turn, purchases a large share of the
region's raw materials. The dominant movements
of goods and services of concern to this study are
between Japan and the United States, and between
these two countries and the rest of Asia. Economic
relations among East Asian countries -- less
Japan -- are small, accounting for about 10 percent
of their total exports.* This pattern of trade has
not changed much since 1963. Indeed the dominance
of the United States and Japan has increased some-
what and the share of intra?-area trade (excluding
Japan) has declined, as shown in the tabulation
below and in Figures 1 and 2.
* Excluded from intraregionaZ trade are goods
flowing through Singapore and Hong Kong which are
destined for nonregionaZ countries or which are
coming from outside the region for countries of
the region.
SECRET
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To
Million
US $
Per-
cent
Million
US $
Per-
cent
Japan
1,403
15
2,143
18
United States
1,360
14
2,141
18
Regional 1
1,250
13
1,260
11
Other b
5,503
58
6,261
53
Total
9,516
100
11,805
100
a. Excluding Japan, South Vietnam, and entre-
pot trade.
b. Including East Asian entrepot trade.
3. Even before the Vietnam war intensified in
1965, many East Asian countries had annual growth
rates for GNP of between 7 and 15 percent in real
terms. Some of the countries -- gong Kong, Singa-
pore, South Korea, and Taiwan -- increasingly used
their relatively low-cost labor to manufacture a
variety of products for export, mainly to the United
States. In the case of South Korea, for example,
exports rose from $30 million in 1960 to $175 mil-
lion in 1965, with exports to the United States
accounting for almost half of this increase.
4. Japan's average annual growth rate exceeded
10 percent from 1955 to 1964. Although domestic
demand was the dominant factor, the increase in
exports (about 15 percent per year) was also an
important stimulus. Japan was able to rapidly
expand exports of the more sophisticated consumer
and industrial goods while, because of rising labor
costs, it was losing its competitive advantage to
South Korea, Taiwan, and other countries in export-
ing labor-intensive goods. Much of the increase
in sophisticated exports was sold in the United
States, which took an increasing share of Japanese
exports.
5. Thailand's 7-percent annual growth rate
was based mainly on agricultural exports rather
than on manufacturing. Larger foreign sales of
rice and of newly promoted products such as corn
and kenaf were especially important. Almost
one-fourth of the increased exports were sold in
Japan.
4 -
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Figure 1
EAST ASIAN TRADE
1963
Imp
orts
E orts
"4
14
+10
H
00
O
H
0
o
t
1
N
w
0
"ii
w
Australia
8
15
52
7
7
34
179
20
*
41
Burma
5
13
Taiwan
2
*
29
*
16
1
11
Hone Kong
22
10
1195 b
3
48
11
10
*
0
Indonesia
66
*
*
9
1
I .
19
*
1 b
South Knrpa
*
*
*
*
*
*
*
MAI-axigin
J.
1
6
1.2
2
2
*
21
*
22 -b
48
*
*
2
*
*
2
*
Singapore
2~
~
b 2
b 30
b/85 b/
-9 b
401'b
11
1 2 b
Thailand
1
*
6
4
38
1
11"",
*
8
*
37
South Vietnam
*
*
*
7
1
1
1
*
*
Subtotal
200
18
50
U
L72
L2
659
210
104
6
51
159
76
107
246
99
160
56
44
15o
136
112
TJnited States
446
12
137
146
109
238
30
72
323
37
53
East Asia
and United
States
805
106
294
595
387
440
745
326
577
179
1`.
684
World
2,462
211
326
1,167
452
504
935
797
618
179
1,258
a. All figures are f.o.b.
b. Largely entrepot trade.
* Negligible.
.HrG Represents 10 percent or more of the country's total exports.
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Imports
Million USj
43
W
f O
r1
T1
0
'd
46
43
to
ca
4-)
r-I V]
to
-H
H
OP,
43
0
-:4 Id
-P 4-3
Id
ti
7
34
179
20
*
41
10
2
375
83;
1.3201
1,178
2,788
2
11
13
8
it)
SO
271-
1
1
6
4
11
11
2
120
105
27
T
11
10
*
0
1
1
5
:'17 ':
419
73
1
B
8
19
*
1, 'b
34
1
7
377
;'],l
552
6 96
*
*
*
*
2
IZ1
26
75
2
*
21
*
228:1/
*
311
196
:10
637
1,088
*
2
*
*
*
*
5
till
4157
259
910
*
*
2
*
*
*
2
:1
;; 1;
55
727
*
*
*
*
*
*
*
*
i
lei^:;,
7
7
b
0 `:?' b
11
b 2 b
*
1
W21
1
45
10
--67-t
1,15
l
,,
*
*
37
2
211
3
32
465
1
1
*
*
*
*
IF
4
1
23
77
42
659
2
210
104
_
6
~
51
115
go
2,395
X395
1,403
1,360
5,158
9,516
160
56
44
15,o
IT
112
181
33
1 559
' " 22
3,081
5,453
238
30
72
323
37
53
96
115
1,81
1,71
3,528
232384
i
440
745
326
577
179
684
392
238
5,768
3,117
2,882
11,767
38,353
504
935
797
61L
179
1,258
549
257
9,715
6,063
17,014
32,792
136,000
try's total exports.
0&
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EAST ASIAN TRADE
1963
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Figure 2
EAST ASIAN TRADE
1967
Imp
orts
Exports
~~
6
qW
?rl
H
pp
q
ba
14
dq
rl
1.
H
W
N
con
do
b
i3
r~1
x
Vf
d