Technology enabling services to grow as a share of trade in one economy after another: EDC chief economist

OTTAWA, Ont.–Peter G. Hall, Vice-President and Chief Economist, EDC, noted in a recent editorial that technology is enabling the growth of services as a share of trade.

Back in 1970, manufacturing output accounted for about a quarter of the US economy. Now, it accounts for just 12.4% GDP, and at the same time private sector services industries have risen from 53% to two-thirds of the economy. The US isn’t alone; over the same timeframe, UN data shows that the same trend is obvious in the UK, Japan, Italy, Spain and a significant group of other OECD countries.

“Canada is no different; our service sector has increased more or less steadily in the same timeframe to 70 per cent of total output,” said Hall.

 Yet in spite of this huge transformation, for the bulk of this time period, international trade has remained dominated by movements of primary and manufactured goods.

“We are still of a mindset that an export is something that we can drop on our foot, and if not, well it is largely an activity that is confined to the domestic economy. Sure, there is trade in services like tourism and transportation, and to some extent financial activities. But in general, many still think of these as necessarily confined and limited activities,” he said.

 According to Hall, technology is enabling services to grow as a share of trade in one economy after another. In the US, it is now 31% of exports, up from just 17% 50 years ago. In the UK, a similar trend, and in Japan, while more muted, services account for 13.7% of exports, up about a percentage point since 1980. Even Germany, with its manufacturing focus, has seen service exports rise from 13.4% to 15.5% of its total since 1991.

“Few economies are left out of this recent trend – the ubiquity of technology is drawing business around the world into the same trend. Will it continue? Almost certainly, unless technology goes into reverse. With the advent of 3-D printing, it is clear that ideas will be in greater circulation, and that geography will be far less important to international commerce. And the movement toward software-as-a-service operations suggests an even further reach for trade in services. They won’t likely become as dominant in trade as they are in macro-economies, but services are likely to continue testing trade’s limits in the coming years and decades. 

The bottom line? Services will become increasingly prominent in international trade flows. As such, we need to get better at measuring services trade; at encouraging involvement in it; at developing policy that supports its development; and at facilitating its flows. It’s one of the great waves of the future,” Hall concluded.