In Donald Trump’s view on global trade, the United States is “robbed, plundered, raped and plundered by close-range states.” Ironically, nearby and distant clients have taken advantage of the services of U.S. banking, consulting and technology giants, sometimes talking about them in a similar way. For foreign officials who consider how to retaliate against Trump’s tariffs, this shows an obvious goal: importing expensive U.S. services.
One fallacy in Trump’s crusades is that the United States strives to sell things to the rest of the world. Indeed, the United States has been deficits in the trade of physical goods for decades, the object of Mr. Trump’s anger. But in the service field the opposite. Last year, the U.S. commodity trade deficit reached a record 1.2ttrn, while its service trade surplus reached $29.5 billion, far exceeding the record, even though some of the exports stem from tax respite from U.S. multinationals. In all the U.S., $110 million of services was sold to foreigners in 2024, almost twice as much as any other country. In other words, the United States is a powerful exporter. It just so happens that the opposite is true in terms of exporting cloud computing power, delivering networks and financial hedging tools, rather than metals or machines.
How do other countries pursue US services? As a thought experiment (not a suggestion), they can start by applying Trump’s logic about the trade deficit to determine the level of fair tariffs on U.S. services. In a shockingly rough calculation to set “reciprocity” tariffs, the White House separates the U.S. bilateral trade deficit from imports from each country, and then roughly divides the results into half (a kind act, Mr. Trump said). These calculations cover only the goods.
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Economists follow the same service method, producing fundamentally different results. The countries on average may conclude that they need reciprocal tariffs on U.S. services to correct ongoing bilateral trade imbalances (see chart). For example, U.S. service providers face a 28% tax in China, 15% in the EU and 41% in Saudi Arabia. Venezuela will implement the highest business in a handful of U.S. companies there: an intoxicating 47%.
If U.S. trading partners do this, it will hurt their own businesses and consumers, just like Trump’s tariffs on goods, will hurt Americans. Still, tariffs on assumption services still show how fragile the U.S. retaliation is. Strictly defined, it is impossible to impose tariffs on services like tariffs on goods. Services do not arrive at the cargo container; officials cannot track them in real time when foreigners sell consulting advice or data management tools.
But there are many ways the government can hinder U.S. services, from antitrust investigations and data rules to licensing fees and additional taxes for foreign companies. In China, for example, U.S. trade negotiators have been less concerned about tariffs on their physical objects, many of which have been significantly reduced, compared to rules that prevent banks, law firms and tech companies from being unable to integrate into the domestic market. From Brazil to India, regulators have been investigating anti-competitive practices of U.S. tech companies such as Alphabet and Apple to fine and force them to tame their business models.
Another debate is the digital service tax, or the imposition of revenue from tech companies. In theory, these are not about discrimination against foreign companies, but about increasing revenue from activities such as online advertising or e-commerce sales that might otherwise fail. In fact, by setting high barriers for income, it is the American giants like Amazon and the dollar that end up in trouble by doing what France and Spain did. The United States has been struggling to deal with such taxes in Europe and elsewhere, considering them discriminatory. Europe’s appetite for compromise may now be greatly reduced.
This may just be the starting point for Europe’s retaliation against U.S. service providers. In 2023, the EU launched an “anti-lubricating tool”, which was first motivated by China’s threat. The tool allows the EU to use any measures necessary to deal with diplomatic coercion. For example, it could exclude U.S. companies from their huge public projects, or reduce their rights to the scope of their knowledge. In a traditional sense, such actions will not be tariffs, but will achieve unique results: providing advantages for domestic companies.
For decades, U.S. trade negotiators have been planning to reduce global barriers to global financial knowledge, technical capabilities, logistical muscles, and more. They helped reposition the World Trade Organization’s focus and make the digital economy a core component of new deals such as the Trans-Pacific Partnership (although Mr. Trump pulled out of the TPP during his first term). Now, with the president’s high new tariffs, U.S. negotiators have greater leverage that can promote greater liberalization of services trade.
But there is a big warning, said Michael Froman, chief U.S. trade negotiator under Barack Obama. “To make the leverage meaningful, it has to be taken out. You actually have to list the tariffs that you want other countries to do and you need to make progress on those issues.” “So the question is whether the government is ready to use the tariffs as leverage, or decide to maintain it.”
If Mr. Trump chooses to keep the tariff wall around the goods and he gives all the signs that it is his intention, the chain from causality to effect will flow in the opposite direction. Other countries will use their tariffs used as RAM to expand exports of their export services, but instead use their imports of U.S. services to fight back against Mr. Trump’s tariffs. They have enough scope to cause pain to the most competitive global companies in the United States.
©2025, Journal of Economics Co., Ltd. all rights reserved. From an economist, published under license. The original content can be found on www.economist.com
