Posted 30 November 2009 by Patrick Thomas
Let’s do a little thought exercise. When you think of international trade, what’s the first image that comes to mind? If you’re anything like me, it’s a massive container ship filled to the brim with goods, chugging along through placid waters. Something like this, perhaps…
That’s an accurate representation - mostly, when we trade, we still trade stuff. But that is changing, and it means that our conceptions of trade will need to change as well. Increasingly, we will trade services.
By services trade, I am referring to things like banking, help desk call centres, tax preparation and medical advice. These are all examples of services that can be provided remotely and are thus tradable.
In a nutshell, as economies develop and get richer, they tend to move from growing food to making things to producing services. Many wealthy countries, like the United Kingdom and United States, are primarily service economies. However, trade in services has lagged behind its prominent position in the domestic economy: in 2008, the US exported about $550 billion in services. This sounds like a lot, but services were worth about 80% of US GDP last year, to the tune of $11.4 trillion. Services trade has been growing rapidly in the past decade, and there’s still plenty of room for growth.
Further, the main barrier to services trade has been eliminated by the availability of high-speed internet, which makes data transmission easy. Anupam Chander cleverly terms this Trade 2.0: he argues that telecommunications is enabling trade in the same revolutionary way that the Silk Road did in the distant past.
A world with higher trade in services will look different. One repercussion: Alan Blinder recently estimated that 25% of our jobs are now offshoreable, meaning that they can be done remotely in other countries where labour costs are lower. This means that in the future, we will need to be more nimble and constantly improving our skill sets.
But on the whole, more trade in services will benefit our lives, just as more trade in goods has. We will have more choices, lower costs and more savings. And countries like the UK and US, as world-class service providers, will do just fine. Did you know that, unlike its trade in goods, the US regularly runs a surplus in services trade?
So we should welcome further liberalisation of services trade. In the WTO, negotiators are hard at work on this very issue. Perhaps in a decade, we won’t be imagining a massive container ship when we think of trade, but instead, a series of tubes.
Er, maybe that won’t catch on….