The line between manufacturing and services is getting blurry. Nearly a third of the gross value of goods derives from the services that go into making and delivering them. If the value added by services such as banking, insurance, transportation and other sectors is included in the goods tally, more than half of all U.S. exports can be attributed to the services sector.
Rules on trade in services were first agreed in the treaty that established the World Trade Organization in 1994. At the time, less than 2% of the world’s population had internet access. Today it’s nearly 59%, yet the rules haven’t been updated since 1997, when WTO member countries agreed to some trade liberalization in financial services and basic telecommunications services. Most global rules on services trade still think it’s the mid-‘90s.
Until recently, opening foreign markets to exports of U.S. construction, engineering, transportation, logistics and other services was a bipartisan project. It failed because developing countries were reluctant to provide market access without U.S. concessions on agricultural subsidies and trade remedies such as countervailing duties. Frustrated by this failure, the U.S. and several dozen countries ventured outside the WTO and proposed a Trade in Services Agreement. President Trump was fixated on manufacturing and abandoned those talks when he entered the White House in 2017. Without American participation, they collapsed.
The Biden administration should renew those talks, ideally within the WTO. Negotiations should focus on ending the widespread discrimination in services trade by encouraging regulatory cooperation, mutual recognition, and harmonization; spurring domestic regulatory reforms; and applying the WTO rule that forbids discrimination against imports more widely to services trade.
New negotiations should center on removing barriers to trade in services that have arisen from digital technologies. There were no smartphones in 1997. A host of novel ways of providing services digitally have been devised since then, and Americans are in the forefront of providing them.
The U.S. is the largest trader of services in the world, ranking first in both exports and imports of commercial services. In a global “grand bargain” reducing barriers to trade the U.S. would gain the most, with a net welfare benefit of $131 billion. Eliminating foreign barriers to services trade and digitally enabled trade could create as many as three million new American jobs. From healthcare to education, services that once had to be delivered face to face can now be delivered remotely.
Mr. Biden had a lot to say in his campaign about manufacturing jobs. He knows where the swing votes are. Now he needs to show that he knows how most Americans work, today and in the future. His trade policy must make freer trade in services a high priority.