Trade You Can't See
By: Dr. M. Ray Perryman
Published in syndication July 12, 2017
A large and growing component of international trade won't fit in a tanker, container, barge, or crate. In fact, no matter how hard you look, it is nearly impossible to find some of it with your eyes; much of it is lodged in the cranial cavities found between millions of pairs of ears. The United States has long run a trade surplus in the services category, meaning that we as a nation export significantly more services than we import. In addition, the United States is the world's leader in international trade in services, trading substantially more than any other nation.
Services exports and imports are provided by and to the United States in international markets. They may be supplied across borders (such as a US company sending a team of American accountants to do work at a firm in Toronto or Tokyo) or consumed abroad (such as a US company providing insurance services in Europe). An increasing amount is provided through cyberspace, as engineers, architects, and, yes, even economists send the fruits of their labor in impulses through the air and receive payment invisibly through the global electronic funds transfer system.
Not all services are invisible. Transportation is a prime example of one that, while not a tangible good, is easy to experience and visualize. If an American passenger flies on British Airways, that's an import, whereas a foreign passenger on American Airlines is an export. The Commerce Department (through the US Bureau of the Census and the Bureau of Economic Analysis) tracks nine categories: maintenance and repair; transport; travel (for all purposes including education); insurance services; financial services; charges for the use of intellectual property; telecommunications, computer, and information services; other business services; and government goods and services.
Last year, US exports of services totaled more than $752 billion. Of that amount, nearly $206 billion was travel services. Hundreds of billions in business services were exported, including $98 billion in financial services. More than $124 billion in charges for the use of intellectual property were recorded.
Services imports were nearly $505 billion in 2016, for a surplus of exports over imports of almost $248 billion. For comparison, US goods exports in 2016 were nearly $1.5 trillion, while imports were $2.2 trillion (for a deficit of almost $753 billion).
Taking a long-term historical look indicates that services exports have nearly tripled since 1999 (note that this data is not adjusted for inflation, which accounts for a portion of the increase). Travel services exports have doubled, and several categories are up by even larger multiples.
For many people, "exports" or "imports" brings to mind US factories and the goods they produce or ships loaded with containers of products from around the world making their way across the seas and into US ports. While goods is a larger slice of the trade pie, services is a notable (and much more rapidly growing) component.
Services industries have a notable stake in trade policy. As I have pointed out before, international trade is a good thing for all involved. In fact, it is essential. History and some pretty basic math figured out centuries ago prove the point.
A common and erroneous claim is that trade policy has caused the US to lose jobs. While it is certainly true that many manufacturing operations have moved to lower-wage locations overseas, the primary reason for US manufacturing job losses is technology advances. Manufacturing output continues to expand in the US year after year, but requires fewer workers. Unless we want to tolerate wages in line with the poorest countries on earth, we are not going to make the things that require the least skilled labor. Trade is not the problem. It is easy to make other countries a scapegoat, but the real fault in any job losses is our own lack of effort to retrain workers in the skills needed in the many sectors where the US has a competitive edge.
When you look at the services side of trade, the picture becomes even more clear. We are exporting business services, travel services, insurance and financial services, and the use of our intellectual property at rates far higher than the associated imports. The US is very good at these high value added aspects of gross product, and other countries need them desperately.
At the most basic level, the idea of free trade is that economies can specialize in what they can more cheaply and efficiently produce if disruptive tariffs and quotas and other regulations are removed. When countries specialize in what economists call their comparative advantage, every country can produce more and trade for what they don't have, resulting in more goods and services available overall. Academic studies show that this result has occurred for centuries, including with respect to oft-criticized modern conventions such as the North American Free Trade Agreement (NAFTA). If we spent less time (and fewer resources) trying to hold on to jobs where we don't have the comparative advantage and more time on helping displaced workers get into growing fields, we'd come out way ahead. One of the best ways to get there is to focus on trade in things unseen.