The Growing Importance of Services in Global Trade Flows
The global economy is interdependent. Changes to trade flows can have an immediate effect on local markets and households.
Economy differences vary according to their size and how much trade they conduct relative to size, as well as in their pattern of trade partners and distance from geopolitical centres and degree of diversification of trade activities.
Trade in Value-Added Services
Global trade of services has grown increasingly important as part of global economy, providing innovation, jobs and investment as well as mitigating some of our greatest challenges such as strengthening resilience in supply chains, accelerating digital transformation and creating a greener economy.
Service exports do not fall under customs duties and taxes, making them an attractive commodity for international firms and playing an integral role in driving world trade flows.
Studies have shown that services play a much larger role in world trade than is apparent from gross export statistics (Johnson & Noguera, 2010). This greater significance can be explained by their incorporation as inputs for manufactured good exports or embedded as intermediate good imports and travelling greater distances than pure services exports do.
Trade in Professional Services
Mode 2 services related to innovation, design and architecture represent key components of global value chains; however, their role in global trade flows may be difficult to assess due to various factors, including a lack of reliable and disaggregated data about these sectors.
BEA’s newly introduced statistics covering direct and embedded services exports aim to address this gap by connecting MNE surveys with BEA’s international trade in services data set.
These results demonstrate that while services exports tend to travel less far than manufactured goods, their share of overall trade is increasing – suggesting they could play an even larger role than anticipated in future trade flows. It also calls attention to further study on internationalisation patterns across industries and how MNEs utilize technology to increase service exports.
Trade in Information Technology
Global trade in services has expanded exponentially over time. Trade benefits American consumers, workers, shareholders, and citizens. Furthermore, expanding trade benefits firms innovatively while strengthening international cooperation on critical issues like disease research (e.g. COVID-19 vaccine development). Furthermore, increasing trade opens opportunities in developing nations through technologies like Augmented/Virtual Reality applications.
The increasing importance of services trade can be seen both with indirect indicators like XVA and direct export figures. This trend holds true both regionally and intraregionally as well as when considering direct service industries and those embedded within manufacturing.
A higher interregional trade in services likely stems from greater reliance on foreign services in manufacturing, as well as an increase in service content of manufactured goods. The drivers behind these trends require further study; additionally, deeper regional agreements that promote regulatory convergence in services could promote even further interregional service trade.
Trade in Financial Services
Services differ from goods in that they do not incur transport costs and thus can easily be traded across long distances. Furthermore, embedded services attached to manufactured exports (like jet engines packaged with maintenance service contracts) may cover even greater distances.
Trade in services may play a much greater role in both regional and global trade flows than is indicated by gross trade figures, regardless of whether indicators measure direct services exports or indirect contributions of domestic service inputs to manufactured goods exports.
American companies’ ability to expand internationally through increasing global sales of their services brings numerous benefits for workers, consumers, investors, and citizens. When American Netflix subscribers can watch popular foreign series such as Babylon Berlin, Money Heist, Borgen or Squid Game it’s thanks to U.S. firms expanding internationally as well as SMBs being given access to foreign financial markets thanks to efforts of policy makers who liberalize international trade of services.
