Services: Performance of the Future

Services have outperformed the economic leverage of manufacturing. The growth not only changes the structure and composition of economic activities in both the United States and the world but also leads to a more integrated future. Both legislators and negotiators must pay more attention to the service components of international exchanges if they are to achieve long-term change.

Worldwide, services contributed more than 60 percent of total value added in most major economies in 2017. China and India were the exceptions. For world trade, the value of services exports grew 5.1 percent per year between 2006 and 2016 with a rising tendency. 

U.S. services now account for over two-thirds of GDP. The U.S. companies achieved more than $2.2 trillion in recorded international services sales In trade, services deliver a large surplus. Four out of five new private-sector jobs in the U.S. are created by services. In 2015, the Peterson Institute estimated that the elimination of global barriers to trade in services would increase the U.S. service exports by $300 billion and create 3 million jobs when fully implemented.

There is more to services than meets the eye. Services come in different categories and at different, often opaque international levels. Examples are varied performances in fields such as telecommunications, financial services, computer services, retail distribution, environmental services, education and express delivery.

Manufacturing strength increasingly comes from strong and tailor-made services which enable manufacturing to be more effective and competitive. Current cars are service driven and updated with sophisticated navigation systems. TVs have to connect to streams in order to be smart. iPhone sales rely on Apple’s support services, including troubleshooting and retailing. Even a traditional aerospace exporter like Boeing uses cloud services to manage inventory, optimize maintenance, and minimize the costs of system malfunctions.

Service performance at high has typically been greatly underestimated due to insufficient measurement insight. For example, if a person travels abroad for medical tourism, such value generating activity is hardly recorded. A local session of advice with a financial expert may create high value. However, poor valuation and insufficient recordation lead to only little understanding of current account impact.

Services and manufacturing are not at opposite ends of a scale. Rather, services strengthen the performance of manufacturing and are enhanced by the application of technology. Through its investment in the services sector, China has greatly improved the capabilities of its logistics, transport and infrastructure conditions. China can now demonstrably use its newly generated logistics expertise to outperform its competitors. For example, due to its service investments, the transport time of persons and goods via the new Hong Kong-Zhuhai-Macao Bridge has diminished from 4 hours to 30 minutes since the end of 2018. What a time wharp, yielding clear insights into shifting capabilities. Many will be the companies and countries which sign up to exchange raw materials for infrastructure. 

The integration between services and manufacturing will relegate entire supply chain conditions, which have been laboriously created, to a mere blur. Today, most apparel manufacturers own retail stores. Many store brands like Target build up their own manufacturing, controls, and retail distribution. Apple manufactures its own chips, fingerprint sensors, and other custom components. Concurrently, its retail stores flourish and allow it to control its direct distribution and sale to customers.

Services growth promotes new types of manufacturing. Printing technology gives new meaning to scale economies. Services, combined with flexibility and adjustment bring opportunity and vitality to the global economy. In terms of innovation and employment, strong services are no less important for a country than a strong manufacturing sector. U.S. legislators and negotiators must place growing emphasis on services and their links, both direct and indirect, with manufacturing. A more integrated economy will provide all with a significant payoff.

Professor Czinkota (czinkotm@georgetown.edu) teaches international marketing and trade at Georgetown University and the University of Kent in Canterbury. His latest book is ‘In Search for the Soul of International Business’ 2019, Businessexpertpress.com

International Trade Matters to American Retailers

International trade supports millions of American jobs and is essential to the U.S. economy. The National Retail Federation (NRF) has recently published a new report that presents a state-by-state breakdown of the benefits of trade to the American economy.
In 2013, U.S. trade supports nearly 6.9 million U.S. retail and restaurant jobs. Trade with the 11 countries negotiating the Trans-Pacific Partnership and the European Union members negotiating the Transatlantic Trade and Investment Partnership supported 3.8 million retail jobs.

NRF President and CEO Matthew Shay said that “international trade benefits American consumers and families with lower-priced and more diverse goods, supports millions of American jobs, and creates new investment opportunities for American businesses and retailers, large and small, both here and abroad.”

Trade agreements are important because they have the potential to reduce or eliminate high taxes now applied to U.S. imports of many consumer goods like food, clothing, and shoes. The tariffs collected on consumer goods from TPP and TTIP countries alone reached nearly $6 billion in 2013 – and tax rates can reach 30 percent.

Trade agreements also help lower barriers to investments allowing retailers to open stores overseas. American retailers have more than 54,000 outlets in countries around the world which support domestic job growth in the United States.

Sources:
http://www.businesswire.com/news/home/20150421006072/en/International-Trade-Supports-Million-Retail-Jobs#.VT0ZAmTBzGc
• https://nrf.com/resources/retail-library/trade-matters-american-retailers-and-families

Related articles on trade:
Global Benefits of Trade
How International Trade may be impacting your local economy