Overlooked Opportunity: Trade in Services

Abstract Politicians love the manufacturing sector (almost as much as they love farmers). The current administration has in place a number of programs to support the manufacturing and set as a goal to “create one million new manufacturing jobs by the end of 2016.” (Bogage, Jacob. “Obama’s elusive promise to add one million new manufacturing jobs,” Washington Post, May 5, 2016. Source: https://www.washingtonpost.com/business/economy/obamas-elusive-promise-to-deliver-1-million-new-manufacturing-jobs/2016/05/05/717d8cd0-107a-11e6-93ae-50921721165d_story.html.) The current administration is not alone, both major party presidential nominees also have policies to focus on the manufacturing sector – often involving some type of change to US trade policy. Clinton has back-tracked on the Trans-Pacific Partnership trade agreement and Trump goes further to propose applying 45 percent tariffs on goods from China and 35 percent on goods from Mexico – all seemingly with an eye to aiding the manufacturing sector. While a rebound in the manufacturing sector would be welcome, it is unlikely to have a material impact on the aggregate US employment picture – in 2012, manufacturing accounted for only about 8 percent of the labor force. Worse, focusing on the manufacturing sector diverts attention from a real opportunity: trade in services. The United States has a significant opportunity for increased growth through exports of business services. Global trade increased almost 7-fold over the period 1980–2010. Services share of world trade has increased from about 15 percent in 1980 to 20 percent in 2010. The United States share of global services trade has grown from about 10 percent in 1980 to 14 percent in 2010 – a growing share of a growing pie (World Trade Organization website. http://www.wto.org/english/res_e/statis_e/trade_data_e.htm.). The growing middle-class in emerging economies will likely combine to increase demand for services globally [Eichengreen and Gupta (2009) demonstrate a strong correlation between GDP per capita and the share of business services in GDP, suggesting that rising incomes are associated with increased demand for services.].