Opinion: Focus on the Services Surplus, Not the Trade Deficit

Blaming the world for the US trade deficit misses a major opportunity: the US is already a global leader in services exports, and that leadership can provide an avenue for the country to develop a sustainable competitive advantage in knowledge-based high-tech solutions such as clean energy, machine learning, intelligent transportation, medical solutions, and educational technology.

The administration has been focusing the trade debate on the goods deficit while ignoring the fact that the United States has a positive services surplus that offsets almost three quarters of its goods deficit. The US exported $5,735 trillion of services while importing $5,125 trillion of services, for a $610 trillion trade surplus in services in 2016 (based on an analysis of 2017 mid-year data). During the same period it had an $802 trillion trade deficit in goods. The $610 trillion services surplus offset 74% of the $810 trillion goods deficit.

The US is among the world leaders in services exports. Over a third of U.S. exports are services, by value. By comparison, China’s services exports were only 6% of its total, Europe’s services exports were 22%, and Asia was 27%. Moreover, the U.S. trade surplus in services has grown in 17 of the past 24 years—from 1993 through 1997, and again from 2004 through 2015—whereas the U.S. trade deficit in goods has grown in 19 of those years.

While products are becoming commoditized via robotic manufacturing and global price competition, US companies have a secular opportunity to offer high-margin solutions comprised of services, technologies, and products. These end-to-end solutions can increase customer satisfaction and loyalty, and be gold mines for recurring revenue because they increase customer switching costs.

For example, in clean energy, Advanced Microgrid Solutions is combining energy storage and load control (technologies) with state-of-the-art data analytics (services) to operate customized fleets of energy storage (solutions) for commercial and industrial users and for utilities.

In artificial intelligence and machine learning, Google, Microsoft and others are training devices (products) to understand human language and have real, unassisted conversations (technologies) that can be used in call centers (services) and as sales tools (solutions) for businesses.

In intelligent transportation, Tesla has been installing software (technology) in its cars (products) to offer autonomous driving (solutions) that can save consumers time and eventually increase road safety (many believe).

In educational technology (Ed Tech), Pearson Education develops rights-based digital courseware (solutions) that administer examinations and other assessments (products) and provide personal adaptive feedback based on data from other students’ correct and incorrect answers (technology). Through university partnerships, teaching (services) is a critical part of the solution.

In medical solutions (Med Tech), Healthcare as a Service is rapidly transforming the medical profession. Based on big transaction data sets stored in the cloud, companies such as IBM Watson Health are offering integrated solutions consisting of Big Data (technologies), customized development and analytics (services), and, in conjunction with partners such as the cancer centers or pharmaceutical companies, treatment (more services) or drugs (products).

For these and similar industries, the US should be building the core skills into educational curricula; funding job training and retraining programs; erecting I.P. walls; and offering R&D grants, tax credits, low-interest rate loans, and export promotion support.

The United States should stop engaging in trade wars to protect its soybean, steel, and aluminum industries – unless they are redefined as globally scaleable product-service-technology solutions such as smart farming infrastructure, digital manufacturing process control systems, and robotic industrial 3D printing and construction platforms.

David S. Jacoby is the author of Trump Trade, and the End of Globalization (Praeger / ABC-CLIO 2018).

The views represented above are the author’s alone and do not represent the opinions or positions of Boston Strategies International.

BSI expands to include Capital Project Management

BSI offers end-to-end capital budgeting and capital project management, encompassing Cost Benchmarking and Estimating, Value Chain Engineering, Tender Design and Management, Contract Negotiation, Ongoing Capital Project Market Analysis & Monitoring, and Project Management.

COST BENCHMARKING AND ESTIMATING

BSI offers Major Capital Project (MCP) cost estimates based on Activity-Based Costing (ABC) and benchmarks. We verify and validate by benchmarking the projects against similar projects, and by “fitting” the cost of major components (such as hydrocracking reactors) to the specific engineering requirements of each project based on our proprietary “price cubes.” Learn More

VALUE CHAIN ENGINEERING

For buyers, effective supply chain management should make operations more agile and less costly. BSI has literally “written the book” on methods and techniques to reduce cost and improve quality simultaneously by acting on the end-to-end supply chain. For suppliers, value chain design should result in delighted customers, marketing flexibility, and enhanced innovation and speed to market. Learn More

PROJECT MANAGEMENT

Boston Strategies International offers Project Management Consulting (PMC) services to energy and industrial projects. Our end-to-end project management assures thorough, accurate and reliable project management, assuring on-time and on-budget project execution. Learn More

TENDER DESIGN AND MANAGEMENT 

Major capital projects, especially those on a larger scale than have been realized in the past, necessarily involve close coordination with likely suppliers, which complicates bidding and rules out the conventional approach of sending a full package of specifications to numerous bidders and choosing the lowest bid. The process involves dialogue and pre-qualification. Learn More

CONTRACT NEGOTIATION

A thorough negotiating strategy can make the difference between an agreement that falls apart and a long-lasting and profitable relationship. BSI assists buyers and suppliers in negotiating thorough and comprehensive win-win agreements that survive the duration of the contract term and into multiple renewals. Learn More

ONGOING CAPITAL PROJECT MARKET ANALYSIS & MONITORING

Supply managers make assumptions about the future of supply markets every time they contract with suppliers, or choose not to. Understanding the outlook for key variables of a capital equipment supply market, such as lead time, capacity, price, and market competitiveness, is critical to deciding the right price and contract term.  Learn More

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BSI Announces Publication of Landmark Book on Global Trade Policy

BSI President David Jacoby has written another thought-provoking book: 
Trump, Trade, and the End of Globalization.
The book, which provides a roadmap for mature industrialized countries to participate in balanced growth. The book:
  • Explains the reasons behind current populist trends around the world.
  • Identifies the challenges and failures of globalization.
  • Profiles countries that have developed under different trade frameworks.
  • Assesses models of isolationism and protectionism.
  • Delivers a policy prescription for a new global trade order.

Buy Now

 

“Globalization is the most contested topic of our time. Jacoby tees up the right questions, and his analysis and conclusions about trade and globalization are insightful, important, and timely.”
Dr. Mauro F. GuillénDirector of The Lauder Institute and Professor of Management at The Wharton School

“The scenarios, which are interesting and present some polar positions of where the world could go, emphasize important policy decisions which could have major consequences for the US’s place in the world and its economic prospects.” 
Scott Livermore
COO, Oxford Economics

“David Jacoby’s experience in international business and his insights into the politics and social realities of trade make this book credible and interesting. His assessment of the future role of multilateral trade institutions and regional trade agreements makes sense, and with proper negotiation and implementation, the “new multilateralism” that he outlines can create sustained and balanced economic growth.”
Dr. Oliver Massmann
General Director of Duane Morris LLC

“Jacoby’s analysis of the differing East and West trade experiences rings true based on my 21 years in China. This book offers an intelligent discussion on a new approach to global trade.”
Mike Silva
President of Maison Global

This book skillfully ties together today’s headline economic and trade issues with complex political and social challenges. Jacoby’s analysis of today’s globalization puzzles leads to a clearly presented vision for a prosperous new trade paradigm that can drive sustained global growth. He demonstrates convincingly how investments in infrastructure, education and technology, combined with cost-effective health care and public policies can benefit knowledge-based economies in a global setting.” 
Dan Hodge
Principal of Hodge Economic Consulting

Click here to read more endorsements

Buy Now!!

BSI Expands to Include Compliance Solutions 

BSI is pleased to announce that we have expanded our offering to include software solutions for ensuring compliance to regulatory requirements, including REACH, RoHS, Chemicals Reporting, Corporate Social Responsibility, Human Rights, Conflict Minerals, Anti-Bribery and Anti-Corruption.

We now offer compliance solutions and expert witness services in the following areas:

  • REACH, RoHS, and Chemicals Reporting
  • Corporate Social Responsibility, Human Rights, Conflict Minerals, Anti-Bribery and Anti-Corruption
  • Contract development, interpretation, administration
  • Pricing, market dominance and antitrust

Our turn-key software solutions for managing ongoing compliance programs include:

    • REACH
    • RoHS
    • Chemicals Reporting
    • Corporate Social Responsibility
    • Human Rights
    • Conflict Minerals
    • Anti-Bribery and Anti-Corruption

    Our legal expert services include:

    • Consulting expert
    • Testifying expert
    • Mediator

    Inquire about our Compliance, Claims & Legal Solutions and Services

    Opinion: Stop Blaming China for America’s Problems

    The United States has not lost international economic power because of China. Or Germany, or Mexico, or Turkey, or any other country. It’s losing because it’s bloated and rigid, which inflate US companies’ costs and make them lose business to lower-cost competitors abroad. The current administration is attacking the bloat, but until Congress tackles the deeper structural problems the nation will not be able to sustain gains in international competitiveness brought about by the recent corporate tax cuts and government downsizing. Campaign finance reform, electoral reform, and job retraining are needed to reduce the economic drag caused by dying industries and poorly structured entitlements.

    The US is bloated. Its burdensomely high healthcare costs drive American companies’ prices uncompetitively high in international markets. The country spends almost three times the world average on healthcare. This factor alone puts the country at a 10% price disadvantage compared to not only developing countries but also its peer group of mature, industrialized, wealthy, and developed countries. Bureaucratic environmental and social regulatory requirements inflate corporate costs. And, until the tax reform of late 2017, the U.S. corporate tax rate was the highest in the world. Although Americans tend not to think of it this way, the United States is a welfare state like Sweden was and Germany is. However, atypical of most welfare states, high defense spending is driving unprecedentedly high debt levels and is squeezing out arts, education, and welfare budgets.

    In addition, the US has even deeper structural problems which hinder its agility and resilience. The “young-pay-in/old-take-out” social security system, which at the current rate will go bust by 2034, has been politically untouchable for generations and has caused credit agencies to downgrade US debt, which increases the cost of borrowing. The ballooning national debt, which has doubled since the 2008 financial crisis and at $16 billion now exceeds GDP, is close to its World War II levels. The combination of a huge debt payment obligation and rising future interest rates could be crippling. The economy is also inflexible – neither federal nor state governments offer much in the way of job retraining for displaced workers.  Immigrants, even skilled ones, are currently locked out.

    These problems force US companies to charge at least 20% higher prices than their international counterparts, and far higher compared to some countries. This is not the total differential between American and overseas companies. In addition to the 20% differential, American companies sometimes price higher than their counterparts due to productivity improvements and superior intellectual property. But while price premia for efficiency and unique intellectual property can justify higher prices, inefficient structural costs cannot, so US companies frequently lose international tenders to more aggressive overseas competitors.

    The Trump administration has been taking an axe to the “bloat.” The corporate tax cut, which allows companies to price lower, is a first step toward the United States regaining international trade competitiveness (although it was lowered so much as to produce a large and perpetual budget deficit that will be caused by a shortage of tax revenue). The regulatory purge, particularly in the EPA, is also making US business more cost-competitive (although it is being done to the benefit of cronies). The administration’s practice of leaving positions vacant (e.g., in the Department of Commerce) is crudely executed but has cut both fat and muscle (although this has been to some extent offset by scandalous spending by some agency heads).

    The bigger and harder task will be restoring agility and innovation. To do that, we will need to overhaul social security, develop job retraining, and reform the electoral progress. The social security system needs to be replaced with one where taxpayers pay into their own personal accounts, to avoid the difference between the number of payers-in and payees-out. Job retraining needs to be offered to those in transition, especially in dying industries such as coal (the US should be building knowledge-intensive technology industries, not engaging in trade wars over its coal, soybean, or steel industries). The U.S. legislature is unlikely to come to negotiated agreements on structural issues such as healthcare or social security until: 1) there is a total financial meltdown or crisis, which would most likely be precipitated by a large-scale war; or 2) Congress acts in the interest of the broad middle of the US population.

    There is hope. The spread of electoral reform at the local level is encouraging new candidates who are not beholden to the immutable extremist positions of the established party duopoly, and can confront the big issues. Ranked Choice Voting, sometimes with multi-party winners, is currently used in 11 cities and one state (Maine), and for military and overseas ballots in five additional states, and is gaining in popularity.

    David S. Jacoby is the author of Trump Trade, and the End of Globalization (Praeger / ABC-CLIO 2018), From Bogota to Beijing: Development and Life After Globalization (Lexington Press, 2018), and The High Cost of Low Prices: A Roadmap to Sustainable Prosperity (Business Expert Press, 2017).

    The views represented above are the author’s alone and do not represent the opinions or positions of Boston Strategies International.

    BSI Expands Regulatory Impact Analysis Consulting to Include Environmental, Social & Governance (ESG)

    BSI is pleased to announce that we have expanded our Regulatory Impact Analysis service line to include reliable environmental and social impact assessments that improve the effectiveness of stakeholder Environmental, Social & Governance (ESG) analysis and communications. Our net positive analysis demonstrates the costs and benefits of environmental decisions to provide a transparent picture of performance for investors and shareholders. Learn more about our ESG Data Solution.

    For decades, BSI has leveraged its proprietary economic models and frameworks to advise Departments and Ministries of Finance, Economy, Industry, and related governmental agencies in the formulation of national and sectoral energy, tax, subsidy, and investment promotion policies. Our experience across all aspects of industrial value chains, combined with our strength in economic analysis, provides clients with robust and trustworthy roadmaps for growth.

    BSI is also a leading source for analysis of the economic and fiscal impact of energy policies such as carbon pricing, GreenHouse Gas (GHG) emissions standards, industrial air pollution standards, low-carbon fuel standards, Emissions Trading Schemes (ETS), power generation efficiency, renewable energy tax credits, and tradeable energy certificates. As a Gold member of the Global Reporting Initiative (GRI), we are active in building organizational capacity for Environmental, Social & Governance goals across private and public sector institutions.

    BSI pioneered the field of supply chain economics, having developed many of the analytical and economic methods in the early 2000s. We have used our actual experience with sourcing and supply chain optimization projects to develop accurate coefficients and multipliers for modeling the value chain impacts of investment, sales, and pricing scenarios.

    We have also developed supply chain taxonomies that have been used in policy-making to quantify the impact of policy scenarios on different types of companies. Our expert policy analysis team uses these constructs to provide sound and compelling policy advice to governments worldwide.

     

    Ask How We Can Help with Your Regulatory Issue

    BSI Expands to Include Equity and Debt Financing Services

    BSI has recently expanded its offering to include services related to Private Equity, Debt & Project Financing, and Venture Capital. BSI’s new Portfolio Management and Financing services now include:

    • M&A Advisory & Due Diligence
    • Private Equity Services
    • Debt & Project Finance
    • Venture Capital

    M&A Advisory & Due Diligence

    BSI is a trusted adviser on merger & acquisition strategies, due diligence, and negotiations. We maximize valuation by identifying and negotiating the optimal joint venture and alliance partnerships. For example, we are assisting a Bahraini financial institution form a joint venture with a Chinese manufacturer, and a Chinese government agency form a joint venture with an American organization in China.

     


    Private Equity Advisory Services

    BSI now offers Private Equity advisory services. We are working on transactions such as:

    • $150 million for a high-technology electric vehicle component manufacturer
    • $100 million for a metal fabrication plant in China
    • $100 million for a windfarm + Solar + LNG CHP company in China

    Debt & Project Finance Advisory Services

    BSI now offers Debt & Project Financing services. Sample transactions include:

    • $500 million for an LNG pipeline
    • $150 million for a high-technology manufacturing zone
    • $100 million for a solar park
    • $65 million for a hydropower project
    • $40 million for a windfarm

    Venture Capital Advisory Services

    BSI now offers Venture Capital Advisory services, which include deals such as a $15 million Series B round for a “smart farming” venture in China.


    Inquire about Equity and Debt Finance

     

    How to Ensure Your Suppliers’ Compliance to Corporate Social Responsibility Laws

    As I point out via personal anecdotes in my book From Bogota to Beijing: Development and Life After Globalization, slavery, corruption, and double (and triple) labor standards are commonplace around the world today. However, there are standards and regulations in place to keep companies and their supply chains compliant and mitigate risk.

    Are your suppliers compliant? To get the most out of your data and to ensure compliance, Boston Strategies International recommends Assent Compliance’s turnkey compliance and supply chain data services.

    Learn more about the Human Rights module
    Learn more about the Conflict Minerals module
    Learn more about the Anti-Bribery and Anti-Corruption module

     

    Click here to book a Demo

    How to Audit Your Suppliers’ Compliance to REACH, RoHS, and Chemicals Reporting Requirements

    As I pointed out in my recent book The High Cost of Low Prices, governments are paying closer attention to environmental side-effects of international supply chains. REACH and RoHS are among the most far-reaching and well-known of these regulations.

    Are your suppliers compliant? To get the most out of your data and to ensure compliance, Boston Strategies International recommends Assent Compliance’s turnkey compliance and supply chain data services.

    Learn more about the REACH module
    Learn more about the RoHS module
    Learn more about the Chemicals Reporting module

     

    Click Here to book a Demo

    Electrify Europe Conference and Exhibition in Vienna

    David Jacoby, President of BSI Energy Finance, will be speaking in Vienna on June 20th at the Electrify Europe conference and exhibition.

    Electrify Europe is the world’s first event dedicated to the convergence underway between the power generation and transmission & distribution sectors, driven by digitalization, decarbonization, decentralization and electrification.

    He will explain the role that venture capital, private equity, and mergers & acquisitions will play in redefining business models and reshaping the competitive landscape of power generation.

    He will be speaking alongside moderator Emmanouil Kakaras, Head of Department Innovation & New Products for Mitsubishi Hitachi Power Systems Europe GmbH, and Pete Davies, VP, Digital Engineering Solutions for Uniper.

    To catch us at this event please drop us a line.
    To meet with us at this event, choose a day and time.

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