Trade: Time to double down
With two major regional trade negotiations under consideration, the United States should take advantage of this opportunity to build on its growing strengths.
The past two years have witnessed a remarkable change in the United States’ trade position. For the first time since 1991, the United States has had a multi-year improvement in its trade deficit outside of a recession. Two major trends have contributed to this change in direction: falling petroleum imports and a growing surplus in services trade. While the decline in petroleum imports can be attributed to growing domestic production, the rising surplus in services points to US competitiveness in an area that has become increasingly “tradable” across borders over time.
The Trans-Pacific Partnership (TPP) being negotiated by the United States and 11 other Pacific Rim nations, and the Transatlantic Trade and Investment Partnership (T-TIP) being negotiated by the United States and the European Union, both aim to increase market access for cross-border services as one of their objectives. Although services exports account for only 30 percent of total US exports, they are growing at a much faster rate than exports of material goods. Between 2011 and 2013, services exports grew by 10.5 percent, 60 percent faster than the growth in merchandise exports. Further, the United States’ surplus in services trade is growing, which helps offset the merchandise trade deficit.1
Moreover, this accounting of services’ role in US international trade actually understates its importance. As detailed in the latest report in our Issues by the Numbers series, “A new view of international trade,” over 20 percent of the value of US merchandise trade is accounted for by services inputs such as business and professional services, financial services, and transportation services.
Given the success of US services producers to date, even with sometimes substantial trade barriers in place, there is little doubt that with increased access to the huge markets covered by the TPP and T-TIP, the service sector in the United States could expand even more rapidly.
Of course, these two trade agreements have significantly broader goals than just increasing access for services, and many of the issues under discussion, such as those covering intellectual property, environmental protection, and differences in regulation and standards are highly contentious. However, we live in a highly interconnected world of global value chains where intermediate inputs account for over two-thirds of the goods and 70 percent of the services traded worldwide.2 With the United States well integrated into these chains, increasing the efficiency of cross-border transactions offers the opportunity to improve the United States’ cost-competitiveness in both goods and services.
No doubt about it—trade agreements are very difficult to negotiate, and maybe even more difficult to sell to elected leaders and the general population. However, with new sources of domestic energy making the United States attractive to domestic and foreign manufacturers looking to expand, and a service sector that is demonstrably first-class, it might be time to double down and bring these two negotiations to a successful conclusion.