WASHINGTON (MarketWatch) — President Donald Trump has gone to bat “big league” for steel makers and other American manufacturers in a bid to slash the huge U.S. trade deficit, but the solution no longer depends on rescuing traditional blue-collar industries.
The best way to narrow the trade gap in the long run is more likely to come by opening up foreign markets to post-industrial companies such as Amazon
Fidelity Investments and Paramount Pictures — firms that provide services instead of goods.
The U.S. has a large and increasing trade surplus in services, reflecting its leadership position in many of the most rapidly growing industries in the world.
Ensuring a level playing field in steel and other old-line businesses certainly can’t hurt, of course. A large slice of the $500 billion annual U.S. trade deficit arguably stems from unequal access to foreign markets.
In his first big move to address the problem, Trump on Thursday sought to revive an arcane 1960s law that could allow the U.S. to erect new barriers on foreign-steel imports. Read: Steel stocks rally on Trump review
The White House vows to protect American producers and their workers from what the president described as unfair competition that has cost countless jobs and made it harder for the economy to grow.
We're going to use American steel, we're going to use American labor, we are going to come first in all deals. ➡️https://t.co/Ty5011oJjU pic.twitter.com/yC5ZuVavxK
— Donald J. Trump (@realDonaldTrump) April 20, 2017
Yet the move to protect old-line industries, even if warranted and long overdue, obscures a new reality: The U.S. is now a service-dominated economy whose perch at the top of the global economic order is increasingly supported by its leadership in areas such as Internet services, finance, entertainment, retail and high-tech innovation.
About 80% of Americans work in the so-called service sector, a rapidly growing coterie of industries that involve everything from healing sick hospital patients to delivering products purchased online to enabling borrowers to obtain a loan.
“If you look at the future, the gains are going to come from expanding service exports,” said Edward Alden, senior fellow at the Council of Foreign Relations and author of Failure to Adjust: How Americans Got Left Behind in the Global Economy.
Changing trade patterns illustrate why.
Although exports of U.S. goods are twice as large as services, services have been rising considerably faster. In 2016 services accounted for a record 34% of U.S. exports vs. less than 20% in the early 1980s.
The U.S. also sells far more services than it receives from other countries. Service exports nearly doubled in value to a record $752.4 billion in 2016 vs. a decade earlier, resulting in a $249 billion surplus.
By contrast, the U.S. posted a $749.9 billion deficit last year in goods such as steel, computers and cell phones.
The result: The U.S. ran a $500 billion deficit in 2016.
What makes progress in U.S. service exports more remarkable is that other countries are less open to them.
“The trade barriers for services are in most cases considerably higher than they are for manufactured goods,” Alden said.
The U.S. has sought for years to pry open foreign countries to American service providers, especially Wall Street and Hollywood, but other nations view those markets as more sensitive and in need of domestic protection. They also tend to be more highly regulated domestic industries.
“It’s just a lot more complicated,” Alden said.
For now Trump has not said much about U.S. service exports, focusing his attention mostly on autos and steel. His White House staff is also skimpy on experts in services other than finance.
Even worse, his stricter approach to immigration and travelers coming to the U.S. has made a dent in the large U.S. tourism industry, at least early in his presidency. Hotels, restaurants and airline operators have lost customers — and that means less work for cleaners, waitresses and flight attendants.
“It’s the largest service export and they are killing it so far,” Alden said. Tourism and travel represents about 28% of all U.S. service exports.
As was the case after the terrorist attacks on Sept. 11, 2001, stricter rules on entering the U.S. are likely to be eased once industry complaints grow loud enough. But fewer foreigners visiting America and spending the money certainly won’t help the U.S. economy.