Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

U.S. Dominance in Global Services Weakens

Posted by hkarner - 5. Dezember 2019

Date: 03‑12‑2019

Source: The Wall Street Journal

Some softness in demand reflects cyclical factors, such as slowing foreign economies, but other forces are weighing on exports and prompting Americans to buy more foreign services

WASHINGTON—Stocks sank Monday over the toll tariffs are taking on trade in manufactured goods, but trade is also showing strain in a different sector that may matter more: services.

While the U.S. usually runs a deficit in goods, it actually runs a surplus in services. Yet that surplus is shrinking. Exports of services barely rose in the first nine months of 2019, while imports rose 5.5%, the Commerce Department said.

The services surplus, at $178.5 billion through September, was down 10% from a year earlier, on pace for its steepest annual decline since 2003. October data are due out Thursday.

The services pullback is significant because in the last half‑century the U.S. has evolved from an industrial superpower into the undisputed champion of the global services economy. From 2003 to 2015, the U.S. trade surplus in services such as medical care, higher education, royalties and payments processing nearly sextupled to $263.3 billion.

Some of the softness in service exports likely reflects cyclical factors, such as a strong dollar or slowing foreign economies. But economists said other forces are also at work.

Some are structural, such as shifts in the relative appeal of U.S. and foreign‑based services. Another is global trade tensions, which contributed to a weak manufacturing report Monday and sent the Dow Jones Industrial Average down 1%, to 27783.04 after President Trump said he would restore tariffs on steel and aluminum imports from Brazil and Argentina.

 

 

Much rides on whether this trend in services continues or reverses. While trade surpluses or deficits aren’t intrinsically good or bad, they reflect a country’s comparative advantage in the global economy. The U.S.’s prowess in academia, tech, finance and consulting creates millions of jobs, often high‑skilled, and effectively helps pay for imports of merchandise such as smartphones, cars and electrical machinery.

 

“It goes to the heart of what the U.S. is really good at,” said Michael Pearce, an economist at Capital Economics. “These are all areas in which the U.S. is a world leader, and it’s also what drives more fundamental, supply‑side growth in the economy.”

 

Western Kentucky University provides a case in point. Between 2011 and 2015, its enrollment of international students more than doubled to above 1,500, each paying up to $40,000 in fees. They helped the state school balance its budget while it built new dorms, renovated its student union and made other upgrades, even as the legislature reduced appropriations.

 

But since 2015, international enrollment has fallen by nearly half, squeezed by less‑generous foreign‑government subsidies, competition from schools overseas and a perception abroad that the U.S. has become less safe and welcoming. “It’s always been up, up, up,” said John Sunnygard, WKU’s associate provost for global learning and international affairs. “We never knew down. We started to see it, and we didn’t believe it.”

 

 

Services exports may be suffering from rising tensions between the U.S. and its trading partners. “The instability that’s been created in the trade world, in large part by tariff escalation but also just the U.S. approach to trade, has had a negative effect,” said Christine Bliss, who served as an assistant U.S. trade representative in the Obama administration.

 

The pending trade agreement among the U.S., Mexico and Canada includes provisions to enable U.S. service exporters to compete on a more level playing field. The Trump administration also has pressed for better intellectual‑property protection in its negotiations with China. But progress toward large‑scale trade agreements in services has been halting. In his policies and rhetoric, Mr. Trump tends to focus on farm products and factory goods, and seldom on services.

 

The U.S.’s largest export isn’t cars or soybeans but spending by foreign visitors on food, lodging, tuition, health care and other items. These exports, collectively labeled “travel services,” were down 0.6% in the first nine months of the year to $160.5 billion.

 

A tour bus makes its way through New York’s Times Square.

 

The trade war with China appears to be taking a toll. U.S. immigration officials have ramped up scrutiny of visa applications by Chinese students, tourists and medical patients seeking treatment in U.S. hospitals. Beijing this year advised its citizens to reconsider visiting or studying in the U.S. due to heightened scrutiny at the border and frequent “shootings, robberies and thefts” on American streets.

 

The U.S. maintains healthy trade surpluses in some sectors, including financial services, though this, too, has slipped in 2019 on falling exports and rising imports. Exports of services such as intellectual property and transportation also are down this year from last.

 

The latter category, which includes package shipments by U.S. companies that are paid for by foreigners, are a major U.S. service export. In September, FedEx Corp. reported a drop in revenue and profit, and disclosed plans to retire or idle dozens of cargo planes due to rising trade tensions and a slowdown in the global economy.

 

“Weakening global trade and industrial production have resulted in less‑than‑expected demand for our most profitable Express package and freight services,” Chief Financial Officer Alan Graf said in a conference call. “Adverse changes in international trade policies and relations would likely drive additional weakness in our business.”

 

Chinese telecom giant Huawei Technologies Co. has scaled back purchases of U.S. technology products and services this year, due in part to a Trump administration curb on exports to the company, and has begun making smartphones without U.S. chips. It is also developing an operating system that could eventually compete with Google’s Android and Apple’s iOS, which currently dominate the Chinese smartphone market.

 

Other countries are becoming more competitive in service industries the U.S. has traditionally led. Foreign payments for U.S. patents and technology are an important source of service‑export revenue, in part because of U.S. leadership in higher education and basic research.

 

But since 2004, the number of U.S. universities ranked among the world’s top 200 has fallen to 46 from 62, according to the QS World University Rankings. China passed the U.S. as the top producer of scientific and technical articles in 2016 and leads the world in applications for patents, trademarks and industrial design.

 

“We’ve probably reached a point of diminishing returns” in U.S. global technology supremacy, said Chris Bakewell, head of the intellectual‑property practice at consulting firm Duff & Phelps.

 

As foreign doctors—many trained at U.S. medical schools—get better at treating cancer and heart disease, health experts said well‑heeled citizens of other countries will have less reason to seek care at U.S. hospitals. Meanwhile, more people in the U.S. are seeking health care and college abroad to avoid the spiraling costs at home. From 1999 to 2018, U.S. spending on education‑related travel rose 379% and health‑related travel soared 1,761%, albeit from low bases.

 

Cale Green opted for surgery in Mexico this year because he lacks health insurance. Such imports are shrinking the U.S. trade surplus in services.

 

After breaking his collarbone in a cycling accident in July, 28‑year‑old Cale Green, who lacks health insurance, spent days on the phone in Anchorage, Alaska, trying to figure out the cost of surgery. An orthopedic practice quoted him $3,800 plus up to $6,000 for an anesthesiologist; the local hospital offered a base price of $28,000 for drugs and a couple of hours in an operating room.Others who had undergone the procedure told him to expect a final tab between $50,000 and $60,000.

 

Then Mr. Green connected via WhatsApp with a doctor his girlfriend’s family knew in La Paz, Mexico, where they owned a condo. His price: $5,800. Two weeks after the accident, Mr. Green was en route to Mexico, where the doctor and a team of nurses operated on his shoulder in a pink‑stucco hospital.

 

“Except for the food that they brought and the people speaking Spanish, everything felt similar…it was the same care,” Mr. Green said a couple of months later, well on his way to recovery. The surgery also came with a bonus that Mr. Green would be hard‑pressed to find in the U.S.: The doctor invited him to a dinner of fresh‑caught marlin after his procedure.

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