Wednesday, February 17, 2010

Don't Forget Services: U.S. Ranks #1 in the World

From today's New York Times:

"President Obama called on America to “export more of our goods” in his State of the Union address last month, setting a goal of doubling what we sell abroad in five years. Good idea, but it would have been so much better if he had said “goods and services.”

Editing the president’s speeches isn’t my job, but the missing words suggest that the White House, like much of the rest of the country, hasn’t realized that exports of services are one of America’s 21st-century success stories. We still picture exports being loaded on ships or planes, but overseas sales are today increasingly delivered in person or sent across the Internet.

Exports of American services have jumped by 84% since 2000, while the growth rate among goods was 66% (see chart). America trails both China and Germany in sales of goods abroad, but ranks No. 1 in global services by a wide margin. And while trade deficits in goods have been enormous — $840 billion in 2008 — the country runs a large and growing surplus in services: we exported $144 billion more in services than we imported, dwarfing the surpluses of $75 billion in 2000 and $58 billion in 1992.

President Obama was right to place a new emphasis on exports, but the best thing the administration can do is reduce impediments to trade and then get out of the way so America’s resourceful companies and talented workers can increase their dominance in the global marketplace."

~W. Michael Cox, Director of the Center for Global Markets and Freedom at Southern Methodist University.

MP: A good place to start reducing impediments to trade would be for Obama to move forward on American free trade agreements with Colombia, Panama and Korea, which were signed in 2007, but are languishing into a fourth year awaiting Congressional approval.


At 2/17/2010 10:49 AM, Anonymous Anonymous said...

When I add a $144 billion surplus in services to an $840 billion deficit in goods I get a net loss in trade of $696 billion. Just why is more free trade with more deficits a good thing?

At 2/17/2010 11:16 AM, Anonymous gettingrational said...

Increasing service exports are a good thing BUT $176,555 million of the $507,486 million was for transportation in 2009. Is foreign travel from the U.S. a service export? Can anyone clarify?
Less then half (Other Private Services) seems to be insurance, etc.

From the BEA 2-10-10 Release:
Travel $94,348(millions)
Passenger Fares $27,284 (millions)
Other Transportation $44,923(millions)

Only a smug U.S. could count foreign travel as an export.

BTW, Royalties of $83 Billion should be many times bigger and is kept down by pervasive piracy.

At 2/17/2010 6:20 PM, Blogger rjs said...

how much of our "services" are parasitic financial or attorney fees, govt bureaucrats, or mandated accounting paperwork?

At 2/17/2010 7:41 PM, Anonymous Anonymous said...

Just why is more free trade with more deficits a good thing?

A trade deficit between the US and China is no more meaningful than one between California and Montana. I also note that US GDP increases in lockstep with our trade deficits: in years when the trade deficit is high, GDP increases more than in years where the trade deficit is low.

At 2/17/2010 7:46 PM, Anonymous Mike B said...

Foreign travel is payment to US airlines, a credit in the balance of payments as a service export

At 2/18/2010 3:26 PM, Blogger Marko said...

I have a massive trade deficit with (I buy lots from them, they buy nothing from me) but I don't seem to be the worse for it.

At 2/18/2010 10:21 PM, Anonymous Endurance said...

" have a massive trade deficit with"

This comment is flippant yet precious and so insulting to those that have and are enabling freedom for your free exchange. There is no relevance to the trading relationship with mercantilist kleptocracies and your consumption proclivities with None what so ever.

At 2/19/2010 4:25 PM, Anonymous Anonymous said...

“in years when the trade deficit is high, GDP increases more than in years where the trade deficit is low.”

Free trade breaks the relationship between GDP and Average Weekly Earnings that existed before we had free trade. Before 1973 GDP and real wages moved together. After 1973 GDP has continued to grow while real wages have declined.

Suppose there is a small manufacturing company with a few hundred workers and direct management on the production floor. Production is ramped up to build inventory. All the production workers including management are fired and the machinery is dismantled and shipped overseas. Customers are supplied from inventory until outsourced production is available. Fired workers who once had middle class factory jobs with benefits get MacJobs without.

How does this impact US gross products?

Company production is still sold and contributes to GDP. The selling price should remain the same at least in the short term. In general the firm is a price taker not a price setter. The market sets the price. True costs are down but there is no need to share with the customer. If the price was lowered competitors would match it even if that meant they must also shift to outsourcing. Before production wages and profit entered into the GDP now it is just profit which is larger by the difference wages here and offshore and some of the transportation costs. Former workers are paid less but it is still more than wages paid overseas and the additional transportation costs. The company’s contribution to GDP is a little less than before but it is more than made up for by the wages of the former workers.

In other words the outsourcing increased GDP while reducing real wages. If GDP is all you looked at the transaction must be viewed as a good thing and your Congressman should help outsourcing. But is it? A few hundred workers are deprived of good jobs and the nation has a declining standard of living. The number of workers pushing for government health care increases because they no longer have it with their jobs. After a century of free trade the British people went for socialism. If free trade continues to push wages down do you expect it will be different here?

At 2/26/2010 11:47 AM, Blogger Mark Dodson, CFA said...

Trying to "export more goods" is the primary reason that the world has been imbalanced over the last 10-15 years. If we could just get the world's governments to quit thinking that economies aren't healthy unless there are more people employed in manufacturing. This line of reasoning is like a horrible disease.

Politicians! Will you please just leave all the robots and computers that make our cars, appliances, and Plasma TVs alone. We'd all be better off... I for one am hoping that the prices come down far enough so can afford even more of that stuff... I aspire to have an LCD TV in my shower someday.


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