The U.S. Trade Surplus In Services

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by: Timothy Taylor

Summary

The US has been running a trade surplus in services for the last few decades, and it's getting larger.

In the 1990s and early 2000s, the US monthly trade surplus in services (that is, the amount the red line is above the blue line) was typically in the range of $8 billion per month.

A fair number of Americans and politicians argue that a trade deficit is in large part a result of unfair trade practices by other countries.

The US has been running a trade surplus in services for the last few decades, and it's getting larger. Here's a figure generated with the help of the ever-useful FRED website run by the Federal Reserve Bank of St. Louis. It shows monthly trade data. The blue line shows the monthly US trade deficit in goods. The red line shows the monthly US trade deficit in goods plus services. The red line being above the blue line shows the US trade surplus in services.

Click to enlarge

In the 1990s and early 2000s, the US monthly trade surplus in services (that is, the amount the red line is above the blue line) was typically in the range of $8 billion per month. In the last few years, it's been more like $18 billion per month. It's likely that the predominant area of growth in US trade in the future will come from exporting services - managerial expertise, legal, financial, entertainment, technological, design, logistics - rather than physical objects. This figure shows that exports of services used to be about 27-29% of exports of goods plus services combined, but the share of services in total goods and services exports is now above 33% and rising.

Click to enlarge

A fair number of Americans and politicians argue that a trade deficit is in large part a result of unfair trade practices by other countries. Essentially, all actual economists disagree with that claim. Economists instead see trade deficits are arising from broad patterns of national production, consumption, and saving. A low-saving economy like the US consumes more than it produced - which it can do by running a trade deficit and importing more than it exports. A high-saving economy produces more than it consumes - which it can do by running a trade surplus and exporting more than it imports. Unfair trade practices can certainly restrict overall flows of trade, but they aren't a main cause of trade deficits and surpluses.

That said, I wonder how many of those who think that trade deficits are a result of unfair trade practices by other countries are willing to stick to the logic of their position when it comes to US trade surpluses in services. If trade surpluses are a sign of unfair trade practices, then doesn't the ongoing US surpluses in services trade prove that the US is using unfair trade practices in services? My own sense is that too much attention gets focused on whether other countries are trading unfairly, and not nearly enough attention gets focused on how US producers can hook themselves up to the faster economic growth rates happening in the emerging economies of the world.

Disclosure: No positions.