Alexis Crow leads the geopolitical investing practice at PwC, and is a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University.
As global stock markets have taken a tumble with recent pronouncements of a potential trade war between the U.S. and China, it is clear that investors bank on trade between the world’s two largest economies as vital to global growth. As statements from the campaign trail snowball into larger declarations and potentially more tariffs, it is important to take a step back and examine a basic fact that seems to be overlooked.
While much of the acrimony emanating from the White House on trade focuses on America’s trade deficits in goods — like steel, aluminum, textiles and auto parts — the simple fact is that the U.S. actually runs a surplus in services with the world. And that surplus continues to expand and grow.
Similar to other advanced economies, for the last few decades, America has undergone a transition from an old economy (goods-producing) to a new one (services-providing). Providing services is the heartbeat of America’s new economic growth, including IT and communications services, logistics, warehousing, leisure, hospitality, health care, business and legal services.
But in order for American companies, markets and wages to grow and expand in a sustainable trajectory, it needs export markets for its services. A trade war could potentially jeopardize that and thus America’s economic trajectory as well as economic growth around the world.
By 2026, as the chart below shows, services-providing jobs are set to make up 81 percent of jobs in the U.S., with goods-producing jobs comprising just 11.9 percent. Jobs in services already reached 77 percent of employment by industry sector over a decade ago.
It is easy to blame others for economic transitions that result in losses. In certain advanced economies, it has become politically convenient to castigate erstwhile trading partners rather than address the issues domestically. In fact, both parties in the U.S. House of Representatives have traded places on voting against free trade over the last few decades. But imposing tariffs causes rising prices and damages consumer spending, which, as a percentage of GDP, has been a main driving force behind the current economic expansion in the U.S., particularly when compared with other large economies.
If we take the long view, the wealth created by America’s trading partners, including Japan, South Korea, China and India, translates into income that is often spent on U.S. services: travel, media, entertainment, IT and logistics. That appetite continues to grow at a healthy pace. By attacking trading partners for not buying American goods (again, the production of which accounts for about 12 percent of total employment), the U.S. endangers the growing export markets for its services.
Much to the chagrin of trade bears, part of the solution to the current geopolitical uncertainty in America may come from another country: Germany. A version of the German vocational training programs could be exactly the kind of medicine needed for the U.S. to cope with its transition from an old to a new economy and to account for those who’ve been phased out of the old system.
German small and medium companies employ 83.2 percent of their German trainees. Together with employers, apprenticeships are supported by the federal government, which invests in research and development and addresses crucial skills gaps. Furthermore, Germany continues to successfully weave refugees into its vocational training programs to address the migrant crisis.
In translating that for America, certain issues arise. There is a stigma attached to the word “vocational.” Some shrink back in horror and think only of plumbers and electricians — although these jobs are in demand no matter where we are in the economic cycle.
But the word “vocation” literally means “to be called,” or to have a calling. Many young people in the U.S. look to business school as a means of finding their calling and achieving success. But some people may find they’re most gifted with skills that apply to work in sectors not covered by an MBA program, and they may actually achieve higher wage growth if they stay true to that calling. Perhaps “tertiary education” is a better phrase.
The question of funding also arises. Together with the private sector, the German federal government generously supports apprenticeship programs as well as programs that help trainees expand and innovate abroad. And while some leading U.S. corporations have advanced innovation labs, the best solutions arise when forward-thinking companies work together with state and local governments.
It is incumbent upon states and local governments as well as corporations to help convert workers from 20th-century to 21st-century jobs. The leap may be not as far as from steel production to data analytics; it may be the shift from a retail banker to a health care service practitioner — in other words, a shift that includes higher wage growth, given the increasing demand for health care services from retiring baby boomers.
Erecting trade barriers means shutting out prospects for dialogue on the ties that bind us. Not only would the prospects for American livelihood and economic expansion be much diminished, but the conduits and pathways for communication on the most important global issues — such as debt and job creation — are snuffed out. In America, we have a glaring need to help people match their skills and talents to shifting patterns of demand in the new economy. Our best example may come from abroad, but the onus of responsibility lies squarely at home.