Monday, May 17, 2004

Say goodbye to that US services trade surplus -- and hello to a current account deficit at 6% of GDP?
Jobs in the service industry are moving overseas to India, China and other countries at a faster than expected pace, according to a study released Monday.

Forrester Research reported that the number of U.S. service jobs moving offshore will grow to 830,000 by the end of 2005, compared to its original projection of 588,000 -- a whopping 40 percent jump.
Throughout the 1990s the US services balance was routinely +0.8-1.2% of GDP, reaching its peak of +1.26% in 1996:IV. Ever since then, however, the US edge in global services has been steadily eroding, so much so that in 2003 the services balance was barely over +0.5% of GDP. According to Dan Drezner, however, none of this matters; he didn't even hint at it in his overblogged Foreign Affairs piece on outsourcing. While Drezner advances the standard liberal mantra that we all benefit from free trade, it is much less contested that free trade always generates big US trade deficits. Thus more services trade will almost surely generate a big services deficit to mirror the US goods trade deficit.

Stephen Roach or Dan Drezner? Against my usual judgement, I'll take the real economist on this one.

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