Intangibles trade surplus holds up well in pandemic. Goods deficit explodes.

Yesterday the Bureau of Economic Analysis (BEA) released trade data for April, showing an improvement in the U.S. trade deficit – due to a significant decrease in imports (down by $12.1 billion from March) coupled with a rise in exports (up by $8.5 billion). This month’s release also includes the annual revision of trade data going back to 2015.

Given the updated data and that it has been slightly more than 2 years since the COVID 19 shut down, I thought it was time to take an updated look at how intangibles trade has been affected by the pandemic. The short answer is: not much – unlike the trade in goods which got hammered (see chart below).

As the chart labeled “Trade in Intangibles” shows, intangibles exports, imports and trade balance were basically on the historical trend line. Overall exports grew from $44.9 billion in March 2020 to $53.2 billion in April 2022. Imports rose at a slightly lower level, going from $25.7 billion to $30.6 billion in that timeframe. As a result, the surplus grew from $19.2 billion in March 2020 to $22.6 billion in April 2022 – an improvement of $3.4 billion.

The chart of the components of intangibles trade shows a similar story of continued trend lines for most areas of intangibles trade. The interesting exceptions are Financial Services and Maintenance & Repair Services.

Financial Services grew dramatically in the first part of the pandemic due to a surge in exports. The surge leveled off in the spring of 2021. At the same time, imports rose slightly resulting in a small decrease in the traded surplus in the past few months (see chart below).

Trade in Maintenance & Repair Services shows the opposite trend (chart below). The traded balance dropped precipitously as exports plummeted at the beginning of the pandemic. This illustrates the category’s close relationship with goods trade and reflects the physical lockdowns during at the beginning of the pandemic. Exports began to recover in the spring of 2021, matching the slight rise in imports. As a result, the trade balance has generally held steady since then. Unfortunately, trade in this is category of intangibles is relatively small so any improvement contributes little to the overall intangibles trade surplus.

In general, this most recent data is in line with my earlier analysis that the pandemic is not having a significant impact on trade in intangible.

However, neither is the pandemic a catalyst for improving performance. Case in point: the pandemic seems to have had little impact on our trade deficit in Insurance Services. But that is not good news as the trendline continues to go straight down with imports climbing and exports declining slightly over the past few years.

In addition, our surplus in Intellectual Property seems stuck at a lower level as payments out (imports) grew at about the same as revenues received (exports). As I noted back in December of 2019, the trade surplus in IP products has been declining for almost a decade as revenues (export) have remain essentially flat while payments (imports) have grown.

NOTE: As part of its 2020 annual revision, BEA has updated the categories it uses to collect services trade data. As mentioned above, this includes creating a new category called Personal, Cultural, and Recreational Services. This category consists of the following subcategories (some of which were previously included in the Intellectual Property and Business Services categories:

  • Audiovisual services, which covers production of audiovisual content, end-user rights to use audiovisual content, and outright sales and purchases of audiovisual originals
  • Artistic-related services, which includes the services provided by performing artists, authors, composers, and other visual artists; set, costume, and lighting design; presentation and promotion of performing arts and other live entertainment events; and fees to artists and athletes for performances, sporting events, and similar events
  • Other personal, cultural, and recreational services, which includes services such as education services delivered online, remotely provided telemedicine services, and services associated with museum and other cultural, sporting gambling, and recreational activities, except those acquired by customers traveling outside their country of residence

BEA also created a new category called Construction Services separating the data out from the existing Business Services category. Since this category seems to cover physical construction activities, I have decided not to include it as an intangible creating activity, similar to how we treat the Travel and Transportation categories. For more information, see the BEA article “Preview of the 2020 Annual Update of the International Economic Accounts

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