Service Firms in the Politics of US Trade Policy

Despite the importance of services in international trade and in the support of global production activities, studies of the political economy of trade liberalization tend to focus on goods trade and the preferences of manufacturing firms and their employees. This article advocates greater consideration of service firms and services trade in political economy models of trade policy. I build my argument around a number of stylized facts about US trade in services. The data suggest that the United States maintains a comparative advantage in services trade, which for standard accounts of trade politics would suggest more homogenous support for trade liberalization within the services sector compared with manufacturing. However, the politics of services liberalization are complicated by the distinct and complex features of international trade in services. Tradable services are delivered internationally through cross-border trade (often electronically), but also through temporary travel and—most importantly for US firms—by a commercial presence, that is, foreign direct investment. These features of services trade imply that governments have an array of policy tools at their disposal with which to protect domestic firms from foreign competition. This article documents the relative importance of various modes of US trade in services, assesses the relationship between policy restrictions and services trade, and discusses how growth in services trade may impact firms’ trade policy objectives.