Trade talks EU – US: Trade in services should be taken into account
Trade in services is being largely neglected in the discussion on trade relations between the EU and the US, criticizes a recent Kiel Policy Brief. Yet trade in services is on a similar scale to trade in goods. Each year between 2014 and 2024, the US recorded a generally significant surplus in trade in services with the EU, which partially compensates for the US deficit in trade in goods.
“The importance of trade in services between the US and the EU unfortunately only plays a minor role in the trade talks between the two economies, otherwise this would give the EU considerable negotiating power,” says Holger Görg, Research Director “Trade” at the Kiel Institute for the World Economy and one of the authors of the Kiel Policy Brief „Transatlantic Ties beyond Goods Trade: Significance and Policy Implications of EU-U.S. Services Trade“.
According to the report, technological progress and cost reductions in information and communication technologies (ICT) as well as the digitalization of business models have made cross-border trade in services considerably easier in recent years. According to figures from the EU's statistical office, Eurostat, the value of trade in services—i.e. the sum of imports and exports—between the EU and the US increased by 169 percent between 2014 and 2024, almost tripling. And the EU and the US are each other's most important trading partners for services.
Trade in services almost as important as trade in goods
Eurostat puts the value of trade in services for 2024 at 816.9 billion Euros and the value of trade in goods at 867.1 billion Euros. In quantitative terms, trade in services between the US and the EU is thus, by now, almost as significant as the total trade in goods between the two economies. Eurostat puts the US surplus in trade in services at 148.0 billion Euros, which is around three quarters of the US deficit in trade in goods of 197.4 billion Euros.
Taking into account both trade in goods and services, the US trade deficit with the EU thus shrinks considerably.
Digitally deliverable services such as fees for the use of intellectual property or digital business services play a prominent role here. According to Eurostat, their trade value amounted to 77.2 percent of total trade in services between the EU and the US in 2023. “This reflects the globally dominant role of US tech giants such as Google, Meta and Microsoft,” says Görg.
The figures from the US Bureau of Economic Analysis differ from the Eurostat figures due to different data sources and collection methods. However, they also show the tremendous importance of trade in services between the EU and the US and the extent to which it has increased in recent years.
Trade talks with the US: carrots and sticks
Görg: "The EU should pursue a carrot-and-stick strategy in its negotiations with the US On the one hand, it should lure the US with the offer to facilitate trade in services by removing trade barriers in the services sector, for example, through standardizing regulations in the EU member states or reducing bureaucracy. On the other hand, it should threaten the US with restrictions on services trade, if the US continues to pursue protectionism in trade in goods."
