What Trump’s trade rivals might use as payback

In all the tit-for-tatting that has passed for negotiation in an international trade environment dominated by US President Donald Trump, services have received remarkably little attention. Until now.

One obvious reason for the lack of attention is that the services story doesn’t fit into Trump’s big narrative about the US being a victim of global trade. And, right now, trade is Trump’s story. While he can contrive the image of a hapless but good-natured US population that has endured the apparent inundation of all manner of goods from every corner of the globe, he cannot paint the same picture with regard to services.

You see, the US enjoys a healthy and growing surplus in services. And though it has the largest trade deficit in the world, it is without doubt the world’s number one supplier of services.

The services sector includes all those things that make the US feel so familiar to us – software, movie studios, retailers, airlines, media companies, hotels, health-care providers, lawyers and accountants. As one US media report explains, the services sector includes just about anything that doesn’t come out of a factory, a farm, a mine or an oil well.

In 2024, the US exported more than $1-trillion in services to the world, on which it chalked up a surplus of just under $300bn. Though rather dwarfed by its overall trade deficit of more than $1-trillion, the $300bn is not to be sniffed at.

More importantly for Trump’s MAGA base, the US services sector is a substantial employer, hiring considerably more people than the manufacturing sector.

Of course, Trump might argue the reason there aren’t more Americans employed in manufacturing is precisely because the world has stolen work opportunities by flooding their goods into the US and, through tariffs and other means, prevented the US from growing its manufacturing base. But, as one economist explains, it is normal for manufacturing jobs to shrink as a percentage of employment as a country gets wealthier and becomes more technologically advanced.

Why aren’t countries pushing back on services?

Difficult to measure

In 1939, the service sector employed 57% of private sector non-farm workers in the US. By 2024, this figure had shot up to 80%. Don’t for one minute think it’s all high-tech or high-value employment; the low-paying retail sector accounts for a large chunk of services employment, as does the growing gig economy.

Over the same period, the manufacturing workforce declined from 44% to the current 19%. And here’s the thing: no matter how much success Trump has in his raucous efforts to get manufacturing capacity back to the US, it’s difficult to imagine it making much impact on employee numbers, particularly as much of the capacity that returns will be automated and offer relatively few employment opportunities.

So, why aren’t countries that are staring down the barrel of a tariff war threatening Trump with retaliation where it would hurt most and where they would seem to have the most leverage? China, the EU, Canada and Mexico all buy massive amounts of services from the US.

One reason could be that it’s extremely difficult to identify and measure services. By their very nature, they cannot be tariffed as easily as physical goods.

Johann Human, a former director of the rules division of the World Trade Organisation (WTO), agrees it would be very difficult to use services as a form of retaliation and points out that services data is often not that reliable.

“An additional difficulty is that while there is a WTO agreement on trade in services, it has no provisions dealing with subsidies on services,” says Human.

No rules benefits the US

That there aren’t any rules is evident from the generous subsidies enjoyed by services across the globe. “Airlines often enjoy generous subsidies,” Human tells Currency, adding that the EU has managed to impose internal limits on subsidies but there’s nothing beyond the EU borders.

Human, who spent decades working at the WTO and before that at the General Agreement on Trade and Tariffs (GATT), says Trump may regard the EU’s various court cases against US tech companies as a form of tariff.

But as for the WTO, its efforts to establish some rules around electronic trade are now at a standstill. “That hugely benefits the US,” says Human.

At the very end of March (many tariff iterations ago), European Commission president Ursula von der Leyen did tell the European parliament that the EU was prepared to target US services exports, including those from big tech companies, if Trump imposed reciprocal tariffs on all EU imports into the US.

Suspension of intellectual property rights and excluding US companies from public procurement contracts were also considerations, as was reducing access by US financial services companies to the EU market.

Not long after Von der Leyen’s statement, word got out that China is considering a number of aggressive countermeasures, which include several assaults on America’s valuable services sector.

The Inside China website recently referred to comments by a prominent Chinese internet opinion leader, Liu Hong. “How to respond? We will counter every move,” said Liu. “China doesn’t provoke trouble, but it’s not afraid of trouble either.”

China, according to Liu, has prepared six major countermeasures. They include the suspension of China-US fentanyl co-operation; restricting US companies from participating in procurement and limiting business co-operation such as legal consulting services; investigating intellectual property benefits of US companies that may be enjoying monopoly benefits in China; and, finally, banning imports of American films – no small measure given that they generate an average of 10% of their gross receipts in China.

So, it seems that, in time, nowhere will be safe from Trump’s erratic tariff strategy.