The misunderstood giant of trade? That would be services.
By Alice E. Ancona
The past several years have been tough for pro-trade advocates. International trade has dominated the headlines like never before, but unfortunately, it has been portrayed as the bad actor, often misunderstood. That is probably the best place to begin: trade, despite getting a lot of attention, is still misunderstood. And the component of trade which is misunderstood the most is the service industry. What is a service? Simply put, if you can’t make it, mine it, or grow it, it’s a service. A services export is any service provided by a person in one country to people or companies in another country.
Tourism, for example. The services sector has become one of the most significant catalysts for economic growth in terms of job creation, value-added inputs, and international trade. According to the Coalition of Services Industries, services account for 80 percent of U.S. GDP and employ eight out of every 10 Americans. So it’s no small thing, which makes one wonder why it’s too often excluded in the story about trade and trade deficits. For data to help paint the picture a little better we’ll use pre-COVID data, since the pandemic disrupted travel, tourism, and education, all important components of services trade.
The U.S. is by far the largest services exporter in the world, maintaining a relatively consistent trade surplus in services since 1992. In 2019, U.S. exports of services totaled $875.8 billion, more than the entire GDP of Saudi Arabia. Just think about some of the types of services the U.S. exports: movies and other digital entertainment, software, and aircraft maintenance are some examples. Also consider global infrastructure projects that depend on U.S. expertise in engineering, architecture, and design. You cannot export a product without a service. Consider all the value-added functions/services that went into the production of an exported product
(Financial, legal, business services, real estate, etc.) as well as the services that go into sending that product to another country (transportation, logistics, etc.). The digital economy is dominated by services. So, what about trade deficits? With certain trading partners, when you factor in services, trade deficits turn into surpluses. Let’s take one example: Canada, which happens to be a top trading partner for Florida, as well as 30-plus other states. In 2019, U.S. “goods/product” exports to Canada totaled $292.8 billion.
Imports from Canada totaled $318.5 billion, creating a supposed trade deficit of $25.7 billion. Now let’s add in services. U.S. services exports to Canada were $67.3 billion and U.S. services imports from Canada were $38.2 billion, giving us a surplus of $29.1 billion. When you factor services into our trade relationship, we have a $3.4 billion trade surplus with Canada. With some other trading partners, services trade doesn’t wipe out the deficit, but it certainly makes a dent. In 2019, we had a $36 billion services trade surplus with China, an $18.9 billion services trade surplus with Japan, and a $16.7 billion services trade surplus with the UK – just to name a few.
Services trade is notoriously difficult to measure, so trade data on services is limited and definitely undercounted. It’s not hard to imagine that many people and companies have no idea the work they do is even considered a service export. International trade and the benefit it offers are not always understood. Not all trade is tangible. In a world of expanding digitalization, where innovation and the knowledge economy increasingly dominate economic activity, services trade is an invisible yet vital engine for growth.
Alice E. Ancona is COO and Senior Vice President of the World Trade Center Miami.
