United StatesChange Country

U.S. Enjoys Surplus in International Trade in Services

By Karen Lynch

The U.S. registered the world’s largest surplus of international trade in services in 2016, exporting about $250 billion more in services than it imported, according to an annual report issued in mid-2018 by the U.S. International Trade Commission (ITC).1 Preliminary data for 2017 also indicated a large increase in U.S. services exports, the report said. And there was additional growth in the first four months of 2018, according to the U.S. Census Bureau.2

The report comes as “the rapid growth of the digital economy has both generated increased trade in services and improved the potential for what, and how much, services can be traded,” according to the International Chamber of Commerce (ICC).3 In this context, the ITC focused much of its 2018 annual report on digital trade and electronic services.

 

What is International Trade in Services?

 

“International trade in services has witnessed dynamic growth in recent decades, in contrast to more sluggish growth for international trade in goods,” according to Eurostat.4 The top five categories of U.S. private sector services exports are travel and passenger fares, intellectual property, financial services, professional and management consulting services, and research and development services.

 

The World Trade Organization (WTO) categorizes four main modes of conducting trade in services as follows:

 

  • Those that literally cross national borders (such as an emailed architectural design),
  • Situations in which an individual from one country travels to another and consumes services in that country (such as a tourist in a hotel),
  • Transactions of a foreign affiliate (the German office of a U.S.-based law firm, for instance), and
  • The temporary presence overseas of an employee supplying a short-term service (such as a U.S. engineer working with foreign staff on a construction project).

In its international trade in services calculations, the ITC separates out foreign affiliate transactions from U.S. cross-border trade statistics, and statistics sometimes lag by up to a year.

 

Services account for the majority of U.S. production and employment, but only about half of U.S. international exports. U.S. cross-border exports of services reached $758.9 billion in 2016, $797.7 billion in 2017, and $277.8 billion in the first four months of 2018, according to the Census Bureau.5 By comparison, U.S. exports of goods reached $1.46 trillion in 2016, $1.55 trillion in 2017, and $552.6 billion in the first four months of 2018.6

 

Drawing on Census Bureau statistics, the ITC annual report delved further into U.S. international trade in services.

 

U.S. cross-border trade in services increased 3.8 percent in 2017 – after dipping 0.2 percent in 2016. The average annual growth rate from 2011 to 2015 was 4.9 percent.7 As the leading exporter of services, the U.S. holds about 15 percent of the global cross-border services market; the U.K. is second, at nearly 7 percent. The U.K., China, Canada, Ireland, and Japan collectively accounted for 35.8 percent of U.S. cross-border services exports in 2016.8

 

There is significant international services business conducted in addition to cross-border trade, calculated in the report as sales of services in foreign markets by local affiliates of U.S. firms. These sales reached $1.46 billion in 2015 (the latest year available), compared to $1.53 billion in 2014. Sales to the EU represented 44.5 percent of total services supplied by U.S.-owned foreign affiliates in 2015. Among individual countries, the largest foreign markets were Japan (16 percent), followed by the U.K. and Germany (both around 14 percent).9

 

“For U.S. firms, the preferred mode of delivery of many services in foreign markets is through the establishment of a commercial presence,” the ITC report said. Since 1996, sales by U.S. companies’ foreign affiliates have exceeded exports of cross-border services, it said.10

 

International trade in services is often related to trade in goods, as well. Services facilitate merchandise trade, sometimes substitute for certain goods, and are part of the added value in some goods, the ITC report said. For example, telecommunications and payment services support the export of goods, while complex products such as air conditioning systems are increasingly integrated with digital services allowing remote management and diagnostics. The ICC noted that about a third of the value of manufactured goods is estimated to come from services inputs.11

 

The pending Trade in Services Agreement, which 23 trading nations began negotiating in 2013, would aim to clarify international trade in services while promoting fair and open trade.12 The U.S. Chamber of Commerce recently called for relaunching the stalled talks, among other steps. Despite multibillions in U.S. international trade in services, “the potential for service industries to engage in international trade Is almost untapped,” according to Sean Heather, vice president of the U.S. Chamber’s Center for Global Regulatory Cooperation. Notably, one in four U.S. factories export, he told a congressional hearing in June 2018, compared with only one in 20 providers of business services.13

 

Digital Trade and Electronic Services

 

Electronic services were a focus of the ITC’s annual report this year, accounting for 12.7 percent of U.S. services exports and 11.2 percent of imports, while registering a $39.1 billion surplus in 2016. From 2011 to 2015, exports of electronic services grew 2.1 percent a year, but registered a decline of 0.4 percent in 2015-16, the ITC report said.14

 

The ITC’s categories of electronic services include audiovisual (e.g., movies, music), computer and data processing (e.g., cloud-based software), information services (e.g., internet search), telecommunications services, and computer software (distribution rights).

 

In 2016, exports of audiovisual services accounted for 21.8 percent of the total $93.4 billion in U.S. electronic services exports, followed by computer services (18.5 percent) and telecommunications services (13.1 percent). That said, most of U.S. trade in electronic services occurs through affiliates, and in 2015 such transactions amounted to $270.1 billion, or 18.5 percent of total services supplied by U.S.-owned foreign affiliates abroad.15

 

The U.S. has been writing digital trade rules into its bilateral and multilateral trade agreements, and the U.S. Chamber is also encouraging extending this practice, including digital trade advocacy at the G7 and G20.

 

The

Takeaway:

The U.S. is the world’s largest exporter of services. Yet, business groups see room for significantly more growth and are encouraging growth-oriented changes to policies governing international trade in services – particularly digital trade and electronic services.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. Recent Trends in U.S. Services Trade: 2018 Annual Report, U.S. International Trade Commission; https://www.usitc.gov/publications/332/pub4789.pdf
2. “U.S. Exports of Services by Major Category,” U.S. Census Bureau; https://www.census.gov/foreign-trade/Press-Release/current_press_release/exh3.pdf
3. Building for Success: A World Trade Agenda for the Buenos Aires Ministerial, International Chamber of Commerce; https://iccwbo.org/publication/building-success-world-trade-agenda-buenos-aires-ministerial/
4. “International Trade in Services – An Overview,” Eurostat; http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_services_-_an_overview
5. “U.S. Exports of Services by Major Category,” U.S. Census Bureau; https://www.census.gov/foreign-trade/Press-Release/current_press_release/exh3.pdf
6. “U.S. Trade in Goods,” U.S. Census Bureau; https://www.census.gov/foreign-trade/Press-Release/current_press_release/exh5.pdf
7. Recent Trends in U.S. Services Trade: 2018 Annual Report, U.S. International Trade Commission; https://www.usitc.gov/publications/332/pub4789.pdf
8. Ibid.
9. Ibid.
10. Ibid.
11. Building for Success: A World Trade Agenda for the Buenos Aires Ministerial, International Chamber of Commerce; https://iccwbo.org/publication/building-success-world-trade-agenda-buenos-aires-ministerial/
12. “Trade in Services Agreement,” United States Trade Representative; https://ustr.gov/TiSA
13. “Statement of the U.S. Chamber of Commerce,” U.S. Chamber of Commerce; https://www.uschamber.com/sites/default/files/180627_testimony_usleadershipondigitaltrade_jointeconomiccommittee_heather_final.pdf
14. Recent Trends in U.S. Services Trade: 2018 Annual Report, U.S. International Trade Commission; https://www.usitc.gov/publications/332/pub4789.pdf
15. Ibid

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