People mostly think of exports as things that are packed in a 40′ container and sent out by ship. I know that President Obama thinks that, because his announcements of his National Export Initiative in the State of the Union address and later speeches all talked about selling American goods in foreign markets. Neglecting to mention trade in services casts debate in terms of the official balance of trade, which only measures hard goods, and strengthens the determination of protectionists who see nothing but the US trade deficit. The balance of payments is far broader and encompasses services trade but seems pretty amorphous to most of us. We need to take a closer look at services, so guess what we are doing today, kids?
Services trade is huge for the United States and, unlike our trade in hard goods, the United States has a whopping surplus in services – nearly US$162 billion in 2008. This is something we are pretty good at, but few people have glommed onto it yet – even with all this talk of the services economy.
First off, let’s take a look at the categories of services trade. Most of us would have thought of travel, maybe films and TV, architecture and engineering services, but who knew that your accountant or your lawyer might be an exporter? There is a tremendous surplus in royalties and license fees (nearly US$65 billion in 2008). These are all those inventions that have piled up over the years at the US Patent Office, and all we have to do to earn export dollars is license their use to somebody in another market, lean back, and collect the money.
Then there is financial services. All those bad boys in money center banks? Not to forgive them, but they are making a bundle for the country, too. Travel services is less of a surprise, but a real money maker. So are entertainment of all kinds and education services. Any time a US school or college attracts another foreign student, that’s a new American export, so congratulate them.
What is really stunning is that we are running a surplus in almost every category of services trade, until you get down to the bottom five: accounting, passenger fares, computer and information services, freight and port services, and – the biggie – insurance. The deficits in the first two are insignificant, besides we wouldn’t want to stop Americans from traveling. Computer and information services? That’s all that outsourcing to India and elsewhere that everybody moans about. See how unimportant it is in the larger scheme of overall services trade? We’ve got better things to worry about. Freight and port services tend to go along with our trade deficit in hard goods. Insurance is the big loser for us, and that is because it is an industry invented in Europe and still largely dominated by Europeans, especially in the secondary market of re-insurance.