Digitalization is allowing more services than ever to be traded internationally.
Digital Trade in Services Is Good for America
The United States is a powerhouse in services and especially digital‐friendly services. U.S. services exports grew from $563 billion in 2010 to $897 billion in 2022, a 42 percent increase. A lot of that growth either is or could be connected to digital technology. More than 80 percent of U.S. services exports could, at least in principle, be delivered digitally. In 2020, U.S. exports of information and communication technology–adjacent services totaled $520 billion. Export growth has been especially strong in cloud computing and data services ($397 million in 2010 to $6.9 billion in 2021), computer services ($10.1 billion to $45.2 billion), research and development ($22.2 billion to $47.2 billion), and professional services ($48.7 billion to $132.5 billion).
The other things to keep in mind are that the digital economy is large and growing and that services are a much larger portion of the overall economy than goods. In 2019, the digital economy was roughly a 10th of American gross domestic product, and from 2005 to 2019, it grew at more than double the rate of the nondigital economy. Roughly two‐thirds of the global economy and more than three‐quarters of the American economy are services, not goods. The growth potential for digital trade in services is enormous. The more that services can be traded internationally, the more customers American service firms have access to.
Some of the most high‐profile American businesses that benefit from this are the Big Tech firms: Apple, Microsoft, Amazon, Google, and Meta. These are five of the most important companies in the American economy—and arguably the world. The more of their services that they can sell abroad (e.g., Microsoft and Amazon’s cloud computing, Google’s search and advertising, Apple’s media content, and Meta’s social media and WhatsApp), the better it is for those firms’ workers and shareholders, most of whom are American. Those benefits then spread to the wider economy; one technology sector job supports, on average, five other jobs in the economy. A worker at one of these businesses, or any other business that can better sell its services globally, has more disposable income that they can then spend on local goods and services. Moreover, millions of Americans’ retirement savings plans, such as a 401(k), include one or more of these companies’ stocks. These firms contribute significantly to the U.S. tax base, and they provide services that delight consumers, often for free. There are a lot of ways in which the success of these companies strengthen America. To the extent that U.S. policy encourages more globally liberalized trade in services and thus helps these companies succeed, those policies make America better.
Moreover, the benefits of digital services do not merely accrue to this small handful of firms but are instead (and encouragingly) widely dispersed throughout the economy. In 2022, Apple’s App Store facilitated over $1 trillion in commerce, more than double what it did in 2019. Cloud computing is another good example. As the Congressional Research Service notes, “One driver of the diffusion of the benefits of the internet and digitization has been cloud computing. Cloud services have been called the great equalizer, since they generally allow small companies access to the same information and the same computing power as large firms using a flexible, scalable, and on‐demand model.” Not only that, but digital services increasingly undergird the movement of physical goods. For example, in 2018, Walmart partnered with IBM to create a blockchain‐enabled food traceability system that helps prevent foodborne illness outbreaks. Manufacturing increasingly comes packaged with services, many of which are digital in nature, that add considerable value. So, for example, a manufacturing firm might hire another firm to do product design or supply chain optimization; those services end up embedded in the value of the product, but the design expertise and supply chain expertise are communicated across borders digitally. These services add value to the manufactured product while also reducing costs. Service exports also support jobs (e.g., 98,800 jobs in Michigan, 73,000 jobs in Missouri, 32,300 jobs in Kentucky, 46,200 jobs in Utah, and 116,000 jobs in Ohio). All told, service exports support 5.3 million American jobs.
Gary Winslett is an Assistant Professor of Political Science, Middlebury College.
To read the full publication, click here.