Nation's Business

America’s “invisible” trade surplus

America’s “invisible” trade surplus – exporting of services

Henry Eason

The fastest growing area of world trade is invisible. You can’t load it on a ship or stack it on a display shelf. In fact, the British officially refer to it as “invisibles” trade. We call it services.

Last year, the United States exported $132.2 billion and imported $103.1 billion worth of services. America is the largest exporter of services in the world. Until 1982, service trade surpluses made up for chronic merchandise trade deficits. But America’s No. 1 position is steadily eroding, thanks in part to other nations’ protectionist measures.

Services include banking, advertising, accounting, insurance, travel, data processing, investments income, telecommunications, shipping, franchising, entertainment, construction, retailing and dozens of other economic functions that are valuable in themselves or as the grease that smooths the flow of merchandise.

Exports of merchandise and services are complementary, says Brant Free, the Commerce Department’s services expert. Invisibles, he says, “are the bridge over which brain power becomes industrial power. Services have grown as the result of needs of the manufacturing base.”

In its “Hamburgers to High Tech” report, Commerce said, “Services drive demand for higher and higher tech, then buy, apply and sell it.” In 1982, the report says, services exports alone accounted for $48 billion in merchandise sales.

No government agency here or abroad knows the exact size of world trade in services. Such activity is unregulated by the General Agreement on Tariffs and Trade, under whose rules most nations trade. A recent study from the Office of the U.S. Trade Representative says American service exports may be double what is officially reported.

Americans are trying to understand the phenomenon better because services account for almost 70 percent of the United States’ gross national product and have the potential for much bigger sales overseas.

In fact, based on the rudimentary available statistics, the United States has the smallest ratio of trade in services to GNP of any industrialized nation–1.4 percent, compared with more than 10 percent for countries like the Netherlands, Belgium and Norway.

“For France to do almost as much services business as the United States says to me that the French are doing a better job than we are,” says U.S. Trade Representative William Brock. Brock is leading an American effort to bring services under GATT on terms that would encourage free trade. Recently, his office documented 800 examples of protectionist barriers against services exports worldwide.

As more countries, even developing nations, move into service-providing industries, they are shielding their markets from stronger competitors like the United States and the Western European nations.

Some services imports are banned outright. Others are subjected to discriminatory taxes and licensing procedures. Still more countries are subsidizing the development of their service industries.

Harry Freeman, an American Express senior vice president, says protectionism has the same distorting effect on world trade in the advertising sector as it does on trade hard goods.

It is imperative to reverse this protectionist trend, Freeman says, lest it weaken accomplishments in liberalizing merchandise trade.

“Without banking or construction or insurance or transportation, there is not a single factory that would be able to operate,” he says. “Nor would there be any foreign trade. The trading of goods among nations depends upon the services that support those goods.”

COPYRIGHT 1984 U.S. Chamber of Commerce

COPYRIGHT 2004 Gale Group