In justifying his latest tariff announcement, President Donald Trump sued an unfair trade deficit, saying that the United States has been “populated, plundered, raped and plundered” from other countries for decades.
He accused the United States of exploiting its United States through unfair trade agreements, unacceptable Canada’s high tariffs on American dairy products, and criticised Cambodia of imposing excessive tariffs and benefiting for years at US costs.
What he left in his repeated criticism is the surplus of trade from the benefit of the US when it comes to his country’s service industry.
Services account for about 70% of the US economy. This includes a wide range of companies, including education, healthcare, travel and hotels, financial services, media and entertainment, insurance, maintenance, repairs, and claims for intellectual property use.
The export of these services contributes to about 25% of the US economy, economists say.
“The United States has a strong comparative advantage in several major service industries, including education, health, finance, legal, accounting and entertainment. It explains the trade surplus,” said Gary Huffbauer, a senior non-resident fellow at the Peterson Institute for International Economics.
In 2023, the US exported $1.02 trillion worth of services, up 8% from the previous year, and increased services by 5% to $748.2 billion. This left the trade surplus at $278 billion. This goes back at least 20 years ago.
“Trump may be ignorant of the surplus of the trade in services, but it is likely that he believes that talking about the deficits in manufactured goods will result in more general approval,” Huffbauer added, pointing to the auto worker Trump brought on Wednesday as an example of support for the US working class during his tariff announcement.
Rachel Ziemba, an economist and part-time senior fellow at the new American Security Center, agreed that Trump’s failure to mention the indicator was “confusing.”
“He was in his first term as he didn’t emphasize the service despite the fact that he spent his career in services,” Ziemba said, referring to Trump’s real estate, tourism and entertainment ventures.
Trump’s focus on products reflects the fact that manufacturing is important for industrial bases, including the defense sector, and Ziemba said that manufacturing capabilities are too eroding as productivity reaches its reach, creating problems.
“But it’s surprising that he doesn’t look at the big picture. He also doesn’t see how his policies put services at risk. What’s more, reducing research undermines advanced manufacturing. His entire team is underestimating services,” says Ziemba.
Vulnerable to retaliation
There is a reality that many Trump voters are on the manufacturing belt. There, this is one reason Trump focused on trade imbalances as work was moved to cheap destinations abroad, and many plants were closed.
The lack of domestic manufacturing and supply chains was also felt during the symbiotic pandemic when trade squealed halts, and initially resumed at a snail pace when international borders began to reopen.
But neither of them will leave the reality that Trump’s latest strict tariff policies make the U.S. services sector vulnerable to retaliation.
Foreign countries can deny permission to operate US business companies and tax digital services, Hufbauer said. You can also temporarily suspend copyrights, trademarks, and patent rights and prohibit royalty payments.
For decades, the US has worked to ensure access to foreign markets and intellectual property protection for US service companies.
“In some countries, we have tried to limit the scope of Hollywood Entertainment through screen allocations and other devices. Overall, they have not been successful. But this time we were able to call strict measures,” says Hufbauer.
“U.S. services and tech companies could lose a lot of market access and share market values as a result of Trump’s tariff war,” he added.
Although US software doesn’t necessarily have large-scale alternatives, countries are leviing taxes such as digital services taxes and data localization requirements.
Some trends in the world that could be formalized by government policies are already “local purchases” and boycotts.
But for countries planning on applying taxes to Ziemba on these U.S. services, it is always at risk that the move could backfire as it increases domestic market costs and encourages further retaliation from Trump.
By focusing on the production of services, Trump is using “his judgment as to where he can marry political support,” Hufbauer said.
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