The U.S. Economy--A Services Economy
U.S. economic activity is dominated by the service sector in every facet. The dominant role services plays throughout the economy translates into leadership in technology advancement, growth in skilled jobs, and global competitiveness. This services-driven business expansion is overwhelmingly led by small, entrepreneurial firms, yet many of the most prominent U.S. exporting services companies are large firms. Together, small and large services firms now provide more jobs and more new job opportunities than all other sectors of the U.S. economy combined. Over the next decade, electronic commerce will produce profound changes and will be a major contributor to economic development and growth. Nowhere is this potential more evident than in the global trade in services. Electronic commerce has the potential to revolutionize trade in services by lowering transaction costs dramatically and facilitating new types of commercial transactions. It enables the smallest U.S. companies to achieve a global presence and to conduct business worldwide.

The Shift To Services
One of the most widely discussed structural trends in the U.S. economy is the shift from goods production to services production. Within the United States, service industries are playing a critical role in fostering economic growth and expanding productivity. The services sector now accounts for 79 percent of all private sector output and over 78 million jobs. These industries represent a dynamic and important component of the U.S. marketplace.

Encompassing all economic activity other than agriculture, mining, and manufacturing, the services sector includes industries such as travel and tourism, entertainment, wholesale and retail trade, legal and other business services, information services, telecommunications, healthcare, banking and insurance, education, transportation, energy and environmental services, as well as architecture, construction and engineering services--services that each of us uses every day. New services jobs are expected to account for virtually the entire net gain in U.S. employment over the next decade.

The shift toward a more service-oriented economy has been influenced by such factors as the increase in demand for consumer and leisure services, growing demand by businesses for marketing, accounting and other services once provided internally within the goods-producing firm. The shift has encouraged the profound changes in the composition of the U.S. labor force, particularly in the opening of opportunities for women.

Behind The Services Boom
In the 1980s, service companies plunged into the competitive arena, pushed by the deregulation of telecommunications, financial services, banking, transportation, and cable TV. U.S. managers responded to competitive pressures by replacing over-staffed offices with rapidly growing, independent data-processing companies. In the retail and wholesale trade, managers skillfully used information technology to transform their companies.

The growth in business services helps explain one of the important reasons behind the continuing services boom in the United States--the growing dependence of the goods-producing sector on information and other services to increase its productivity, expand its domestic markets and improve its international competitiveness. The U.S. experience has been that as a simple business becomes more complex, it needs more services in finance and insurance, law, advertising and public relations, accounting, data processing, equipment rental and management consulting. At the same time, the U.S. telecommunications and data processing industries have facilitated the operations of domestic industry as well as the exporting of goods and services as banking and accounting.

Services and manufacturing have become increasingly interconnected, as manufacturers buy more inputs from services firms and vice versa. Higher spending on advertising, financial management and a speedier delivery system mean that more service value is added to each unit of manufacturing output. Add in design, marketing, finance and after-sales support, and for some manufacturers, service activities probably account for at least half of its business. Individual U.S. services companies are exploding with innovation and progress. Since productivity is a big competitive advantage, the huge and growing export success of American service industries is further evidence of strong productivity growth in the U.S. services sector.

The long-term expansion of the services sector of the U.S. economy has been the natural outcome of growth and increased economic efficiency. Production and consumption of goods and agricultural products have continued to expand. But efficiencies in those sectors have meant that a declining proportion of the labor force has been required to support this growth. At the same time, greater specialization by firms and the rising incomes of households have rapidly increased the demand for business and consumer services. These demands are increasingly met by a services sector being revolutionized by technology advance, particularly in the area of information and communication technologies. The increasing demand for highly skilled labor from the services industries is both expanding attractive job opportunities for the U.S. work force while providing strong incentives for further human capital formation through higher education, and vocational and on-the-job training. These structural changes in the services sector are having an inevitable spill-over effect in the international marketplace with respect to competitiveness in both goods and services sectors.

Competitiveness
U.S. services firms are the most competitive in the world for several reasons. First, unlike most major markets around the world, U.S. services markets are substantially unregulated. Second, this relatively open environment motivates U.S. services firms to be innovative. Economies of scale is a third factor. Since the United States is the largest single market in the world, U.S. services firms are often able to emphasize profits from volume rather than from high mark-ups on individual sales. Technology underpins these competitive advantages. Because they are competing in an unfettered domestic market, U.S. companies are often quicker than their foreign competitors to seek out and adopt new technologies that can give them an edge. That the United States consistently runs a substantial surplus in services--a record $67 billion in 1995, which offset 382 percent of last year=s merchandise trade deficit--despite the openness of the U.S. market and the many barriers faced by U.S. services providers abroad demonstrates U.S. services firms= competitiveness. U.S. firms= services exports have more than doubled over the last eight years, to a record $196 billion in 1995. Major markets for U.S. services include the European Union ($62 billion in 1995 exports), Japan ($32 billion), and Canada ($18 billion). At $6 billion, Mexico is currently the largest emerging market for exports.

U.S. Government Recognizes Services
A major achievement in FY 1994 was the U.S. Government=s official recognition of the services sector=s critical importance to the U.S. economy. Beginning in FY 1995, the U.S. Government mounted an intensive drive to promote the services sector of our economy. In October 1994, the Trade Promotion Coordinating Committee=s (TPCC) Annual Report to the U.S. Congress announced the U.S. Government strategy for services trade development and the importance of U.S. services exports. The TPCC report pointed to U.S. Government efforts in this area as playing an important role in maintaining and building on the competitive advantages of U.S. firms in world markets. The TPCC is a group chaired by the Secretary of Commerce. When the TPCC pledged that expanding support for services exports will continue to be a major focus of the U.S. trade promotion agenda over the coming years, this effort became the responsibility of the Services Subgroup of the TPCC which includes 19 agency members.

In June 1995, the U.S. Department of Commerce unveiled the Services Initiative of the Clinton Administration's National Export Strategy. For the first time, the U.S. Department of Commerce, together with TPCC agencies, developed a comprehensive program to reach the U.S. services sector. One element of the Services Initiative is to work toward improving services trade data and its utilization.  In May 1997, the International Trade Administration organized an Electronic Commerce Clearinghouse to focus resources on the trade policy, trade promotion, and advocacy necessary to further the needs of U.S. companies and their interests in the development of U.S. trade in services. Electronic Commerce Clearinghouse members work closely with the private sector to provide export assistance and participate with other agencies to improve foreign market access for U.S. service companies.

Services Data
Services data are essential to an understanding of services trade development. An effort is underway at the U.S. Department of Commerce to ensure that sufficient resources are dedicated to improving services trade data. The U.S. Department of Commerce has been expanding data collection coverage of service industries for more than a decade to improve measurement of this dynamic sector. Services are truly changing faster than our ability to measure them on a timely basis. We hope this guide provides the kind of information business can use to seek trade opportunities.

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