New Data Showcase the Strength of Digital Services Exports to Overall U.S. Economy
New trade data released in early July by the U.S. Department of Commerce Bureau of Economic Analysis demonstrate how one of the strongest success stories in the U.S. export space continued to grow in 2022.
U.S. digital exporters earned $626 billion from digitally-enabled services exports last year, up 5.5% from the $599 billion in exports of the same services in 2021. Digitally-enabled services exports made up 2.5% of the U.S. GDP for 2022, a ratio that has held generally steady at that level for the past five years.
In just five years, digitally-enabled services exports have increased by 27.8% from the $489.7 billion generated in 2017.
Digitally-enabled services exports refer to the trade in services defined as “potentially ICT-enabled” to incorporate a broader set of services that are often supplied remotely over information and communications technology (ICT) networks. As BEA notes, a definition this broad therefore includes: “a variety of types of services, excluding those services types that necessarily involve the movement of physical objects or people or those that require face-to-face contact” and includes “insurance services, financial services; telecommunications, computer, and information services; and certain services included in other business services, including professional and management consulting services and research and development.”
Such a definition acknowledges how the digital economy supports not only the exports traditionally associated with technology companies. For example, digital services providers—such as cloud services suppliers—support a broad set of other industries central to U.S. exports such as financial services; business and professional consulting services; and cultural content such as music, TV, and film.
For example, any services supplier operating in a foreign market by definition at least relies on the ability to transfer data to and from that jurisdiction, benefitting from the free and open flow of information powered by digital trade agreements. Cross-border data flows lead to an increase in overall exports and an 82% decrease in export costs for small and medium enterprises, while restricting the flow of data internationally is associated with damage to the national GDP and investments. The World Bank has noted that obstacles to data flows have “large negative consequences on the productivity of local companies using digital technologies and especially on trade in services.”
The importance of the digital economy to broader services exports is made apparent when comparing digitally-enabled services exports to broader services exports. For at least 15 years, digitally-enabled services exports have made up more than half of all U.S. services exports, a majority that skyrocketed to 75% in 2021, although it slightly declined to 67% in 2022. Given the relative strength of the United States in services trade—where it has held a strong surplus in recent years and supports millions of jobs—the fact that digital services represent a majority of overall services trade reflects its importance to U.S. economic strength, competitiveness, and national security. As the Department of Commerce recently detailed in its 2023 National Export Strategy, increased digital trade the rise in prominence of digital trade has coincided with benefits for a broad swath of U.S. exporters, including to the benefit of U.S. small business exporters. A recent OECD study further details how digital connectivity has a positive effect “across all sectors of the economy.”
Snapshots of U.S. Digital Services Exports by Region
Europe continues to be the strongest export market for U.S. digital services suppliers—in 2022, U.S. digitally-enabled services exports to Europe brought in $307 billion, with $187 billion of that figure coming from the European Union.
While the European Union continues to be a thriving market for U.S. digital services, companies from the United States face a growing list of barriers to operating in the market which threatens the prominence of this market and its economic potential. Illustrative of this, exports of information and communications technology services—the more limiting definition of digital services exports that does not include the other services exports that may rely on digital services for their operation and therefore reflects the services more explicitly targeted by EU regulations—failed to grow at the same rate as comparable markets over the past year, according to the latest data release.
Although the volume of digital services exports are greater to the European Union, the growth of the sector in the bloc is slowing compared to outside of it. U.S. ICT services exports to the European Union increased 1.8% from $28.4 billion 2021 to $28.9 billion in 2022, while the same exports to non-EU countries in Europe increased 8.5% from $11.6 billion in 2021 to $12.6 billion in 2022. U.S. ICT services exports increased 6% in the Asia & Pacific region and 5.7% in the Americas over the same time period.
The trade balance in ICT services with the European Union has fallen to $6.9 billion in 2022. That decline has been sustained—in 2020, the trade surplus in ICT services for the United States was $9.8 billion and in 2021, that figure was $8.4 billion.
However, these numbers do not illustrate the full story. The European Union still represents a key export market for U.S. digital services and growth is still demonstrable, even if it slowed over the past year—reflecting the importance of fighting for continued strong trade relations that ensure fair access to the market for digital services suppliers.
Elsewhere, U.S. digitally-enabled services exports to the Asia & Pacific region continued to increase, reaching $140.8 billion in 2022. In the Americas, U.S. digitally-enabled services exports generated $157.1 billion in 2022.
The digital export strength in the Asia & Pacific is particularly important as the United States continues its efforts through the Indo-Pacific Economic Framework. Meanwhile, in the Americas, the United States is pursuing the Americas Partnership for Economic Prosperity, a multilateral framework the United States has launched but that has not yet fully developed.
These fora are important to note in the context of the recently-announced BEA data, as these statistics reflect the stakes for the digital economy—and the economic strength of the United States overall—at issue in these negotiations. As the United States continues to work with partners to enforce and/or finalize the texts central to the agreements, the digital economy should be put front and center as a top priority. Any agreement that fails to stand up for the digital economy would leave behind a key piece of U.S. national interests.
Digital Trade Rules Can Help Maximize the Benefits of These Exports
Given the vast economic benefits associated with digital trade, enabling the full potential of digital exports through trade rules is essential. Ensuring fair access for U.S. digital services providers in foreign markets helps augment its impact on the overall trade balance and maximizes the investments made by U.S. companies abroad. For U.S. exporters seeking to take advantage of digital tools to enter new markets and reach new customers, broaden operations to expand employment opportunities, and achieve financial success, strong trade rules are essential to provide certainty.
Additionally, services also rely on digital trade rules to reach consumers abroad. For example, agreements ensuring the free flow of data internationally and commitments to avoid data localization mandates support any and all companies that conduct business abroad in the modern economy. The data localization requirements and restrictions on data flows that have proliferated globally harm U.S. strength in the cloud services industry and can often give preferential treatment to local players or those from rival markets such as China. Another example is where agreements that confer non-discriminatory access to telecommunications networks not only support online platforms’ presence in foreign markets, but also traditional content creators that depend on online video providers to reach consumers abroad in the face of mandatory revenue transfers in the form of network usage fees.
Overall, facilitating non-discriminatory access to foreign markets protects hundreds of billions of dollars to the U.S. economy and supports not only the digital economy, but all industries now intertwined with the modern digital landscape.