U.S. Services Trade and Off-Shoring

Martin Neil Baily gave a presentation at Princeton University’s Center for Economic Policy Studies 2007 Fall Symposium on U.S. services trade and off-shoring. Following are excerpts from this presentation; use the Download button to access the complete presentation.

Over the past thirty years, deregulation, new technologies and the expansion of international trade and investment have increased competitive intensity. Some of the changes can be traced to globalization—the entry of foreign companies in the auto industry—and some to the domestic economy—the nationwide spread of Wal*Mart in retailing; the growth of mini-mills in steel. The U.S. has allowed these market forces to play out more strongly than has Europe. More benefits and perhaps more costs.

Despite an overvalued dollar (until very recently), there has been a consistent surplus in services trade. In a sense, services trade has generated jobs in the U.S. on balance—although looking at this issue in terms of moving jobs to or from the U.S. is the wrong way to think about it. It is about changing the nature of U.S. jobs. The U.S. exports a range of services and has a surplus in trade in business and professional services (which includes off-shoring). Services trade with India is TINY. It has grown rapidly. It was in balance in 2006.

The U.S. needs to preserve the benefits of a dynamic economy while making sure those benefits are spread widely. Universal health care, better access to training and education, redistribution of income are all possible approaches.

The U.S. has a comparative advantage in services trade and should encourage its expansion. Continued improvements in IT allow more services to be tradable that were previously non-tradable. This trend may be a cause for concern, but—given the current U.S. trade surplus in services—it may be a positive thing for employment.