Commentary Type

Opportunities for US Exports of Business Services

Prepared statement submitted before the US House of Representatives Subcommittee on Trade of the Committee on Ways and Means


Note: The material in this statement is taken from J. Bradford Jensen’s recent book Global Trade in Services: Fear, Facts, and Offshoring (2011) and his recent Peterson Institute for International Economics Policy Brief: Framework for the International Services Agreement (2012) with Gary Clyde Hufbauer and Sherry Stephenson.

The United States has a significant opportunity for increased growth through exports of business services that is going unrealized because of trade barriers in large, fast-growing countries like India, China, and Brazil.

  1. The US business service sector is large (accounting for 25 percent of the labor force), growing rapidly (employment in business services increased roughly 30 percent in the decade prior to the financial crisis), and pays relatively high wages (on average more than 20 percent higher wages than the manufacturing sector).
  1. Many business services are traded within the United States and thus could be traded internationally. Many service activities—software, architectural services, engineering and project management services, and insurance as examples—appear to be traded within the United States and thus are at least potentially tradable internationally. Approximately 14 percent of the workforce is in business service industries I judge to be tradable. In comparison, only about 10 percent of the workforce is in the manufacturing sector.
  1. The United States has comparative advantage in business services. The United States consistently runs a trade surplus in services. Service exports now account for almost 30 percent of US exports, and about 16 percent of US imports are service imports. The United States has consistently maintained a positive trade balance in services, with service exports exceeding service imports. The trade surplus in services was $172 billion in 2011 (triple the surplus in 1992).
  1. In spite of having comparative advantage in business services and globally competitive business service firms, US service firm participation in exporting lags significantly behind export participation in the manufacturing sector. About 25 percent of manufacturing plants export; in business services, only 1 in 20 establishments export. Looking at exports-to-sales ratios in manufacturing, about 20 percent of manufacturing sales are exported; in tradable business services, less than 5 percent of sales are exported.
  1. An important source of the lagging export performance is likely to be the high barriers to services trade imposed by the large, fast-growing emerging markets. India, China, and Brazil (countries where US comparative advantage is most pronounced) all have relatively high barriers to services trade, much higher than the United States or other developed countries.
  1. The United States should be working aggressively to open the large, fast-growing economies to services trade. The International Services Agreement offers an excellent opportunity to initiate the process of liberalization in the service sector. The United States should seek to exploit this opportunity and create additional venues to engage the large, fast-growing economies in services liberalization negotiations.

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