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Editors Note: Will Trade in Services Supplant Trade in Goods?

April 2012
There's been a lot of talk about manufacturing being the key to the U.S. economic recovery. In fact, Jack McDougle, senior vice president at the Council on Competitiveness, recently spoke to me about this very topic and the Council's "Make: An American Manufacturing Movement." (See our Jack McDougle First Person column.)

After all, manufacturing pays higher wages than other jobs and supports about two thirds of all R&D, generating the intellectual property that supports America's high standards of living, as noted by University of Maryland Professor Peter Morici in And President Obama and his economic advisers are intent on helping U.S. manufacturers increase their product exports in order to cut into the nation's $600 billion trade deficit.

Recently, however, some economists have begun to argue that America should concentrate more on exporting services, especially since services continue to dominate the U.S. economy. In fact, 70 percent of Americans now work in service industries, and the U.S. exports more services than any other country in the world ($612 billion exported in 2011).

In reference to a worldwide boom in infrastructure projects, J. Bradford Jensen, an economist at the Peterson Institute for International Economics, was quoted in The New York Times (4/10/12) as saying, "All those [infrastructure] projects require armies of architects, engineers, project managers, financial insurers. These are all the kinds of tradable services that [the U.S. has] an advantage in providing."

Jensen estimates that opportunities in "tradable" services, i.e., those that can easily be done across borders like engineering and law, could result in the United States more than doubling its annual exports of services and support or create about three million jobs - paying significantly higher wages than manufacturing jobs. Therefore, other countries' bans or quotas on services from abroad should be given just as much attention as their unfair tariffs on U.S. goods.

Those calling for an increase in exports of services would agree, however, with those calling for an increase in exports of goods on one point: protectionism is not the answer. Multilateral trade agreements have led to freer trade in goods, and U.S. businesses have profited tremendously from this. However, multilateral trade agreements in services have a long way to go. They would argue that moving people across borders is just as important as moving goods, and the only way to remain globally competitive in the worldwide services arena.

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