Service exports are key to US trade future

When President Donald Trump bemoans the U.S. trade deficit, he’s almost always speaking about goods — steel, beef, lumber, car parts and other products that flow in and out of the country

But the far bigger long-term growth potential and competitive opportunity for turning around America’s trade woes lies with exported services, from financial consulting and insurance to engineering and digital music.

Unlike trade in goods, in which the U.S. ran a deficit of $750 billion last year, the country posted a $250 billion surplus in services the same year. With a handful of exceptions, the U.S. enjoys a surplus in service exports with nearly every other country it trades with.

In the case of a few nations, exports of services turned American trade deficits into surpluses. For example, Trump recently complained about Canada’s $15-billion advantage in trade of goods with the U.S., but when services are counted, it is the U.S. that has an overall $8 billion surplus.

“The real action in the future is trade of services; it’s large and growing rapidly,” said Mark Zandi, chief economist at Moody’s Analytics.

He and others see the lack of attention given to U.S. service exports as a lost opportunity.

Exports account for just 4 percent of the sales of U.S. services that are tradeable, compared with about 20 percent of American manufactured goods, said J. Bradford Jensen, a professor at Georgetown University’s McDonough School of Business and a leading expert on services trade. And while 1 out of 4 U.S. manufacturers export, only 5 percent of businesses that provide exportable services do so.

“I don’t think anyone disputes that the United States has globally competitive service firms — finance, insurance, the Internet, Hollywood, music, architects, engineers, R&D scientists — all that stuff, we’re as good as they come,” Jensen said. “And yet we’re not exporting a lot of that to countries that need them, like China and India.”

It’s not unusual for the public, or presidents, to link trade with manu- factured goods that are loaded into containers and shipped in ocean waters. Trump has gone further by making trade and manufacturing jobs his top economic priority, though — something that many economists criticize as a misguided fixation.

That focus on manufactured goods has led Trump to lash out at trading partners like Mexico, threatening to slap tariffs on imported products and tear up trade pacts such as the North American Free Trade Agreement.

But experts say such moves could backfire by sparking a trade war that would inevitably spread to service exports.

“If we pick a fight with the rest of the world (on goods), that’s going to short-circuit the trade in services,” Zandi said.

Worldwide, growth of trade in services has been outstripping that of goods over the last quarter century. Not all services are tradeable; hotels, restaurants and home healthcare providers can’t export their labor-intensive services. But some of the fastest-growing and most lucrative services can, such as professional and technical work.

U.S. exports of services to China, for example, have tripled since the Great Recession in 2009, to more than $53 billion last year. They include sales of Microsoft software, Hollywood movies, maintenance work on Boeing aircraft in China, as well as an array of services related to the Asian country’s infrastructure development and environmental improvements.

Also counted as exports of services are royalty revenues and fees collected for patents and licenses. That would include, for example, the potential future earnings for Trump, who recently received provisional approval from Beijing for trademarks of the Trump brand that could end up on hotels, golf courses and other businesses, just as in the U.S.

The U.S. currently has a trade surplus with almost every country. India stands out as the biggest exception, thanks to that country’s exports of I.T. services, including revenues from U.S. companies contracting with call centers in India.

Experts say American service providers would be selling more abroad were it not for a wide variety of barriers in overseas markets.