COVID-19 hits IP trade hard – other intangibles, not so much

Yesterday, the BEA released data on the March trade deficit showing the effect of the COVID-19 pandemic on US trade. Like overall trade, trade in pure intangibles took a hit in March, with the intangibles surplus down 2.9% as exports dropped faster than imports. The surplus had also declined in February after rising the previous 4 months.

A more detailed look shows that some categories of intangibles did better, and worse, than others.

The two areas contributed the most to the decline: financial services and net revenues from the use of intellectual property dropped. Both these are showing very worrisome trends. Net revenues from the use of intellectual property decline by over 7.1%. Import (royalties paid out) grew somewhat while exports (revenues received) dropped. As the chart below shows, this is a continuation of a worrisome trend that started back in 2014 of steady to declining revenues and steadily increasing payments.

Note that the balance in financial services also started flatting back in 2014. The March surplus in financial services dropped by 2.3% as both exports and imports went down.

As for the other types of intangibles, the story is rather blasé. The surplus in business services actually grew with total trade increasing– exports rising slightly higher than. The maintenance & repair services surplus was essentially flat as both exports and imports fell. The surplus in telecommunications services was also flat; but in this case both exports and imports grew. The one area where we have a trade deficit, insurance services, improved ever so slightly as both exports and imports rose.