Services Trade

Commentary by William Alan Reinsch

Published April 21, 2025

I'm taking a short break from tariffs this week to focus on a different and often misunderstood part of the trade picture-the role services provided inside the United States play in our trade balance. This requires some explanation. Most of the trade debate focuses on exports and imports of goods, particularly manufactured products, and when Trump talks about trade deficits, he is really talking about the deficit in goods. That ignores the fact that the United States has consistently had a substantial surplus in trade in services. For example, in 2024, the U.S. trade in services surplus was $293.4 billion in contrast to a goods deficit of $1.21 trillion. The services surplus allowed the United States to keep its overall trade deficit below $1 trillion.

Two important elements of that surplus are education and tourism. What many people may not know, however, is that while these services are provided in the United States, they count as exports in our services balance. That may seem counterintuitive since they are provided inside our country, but the logic is that since they are provided to foreign persons, they are actually exports. The foreign students who come to the United States to study take back to their countries what they have learned. The United States is exporting knowledge. Tourists who come here are spending their money on our goods-souvenirs-and services, such as hotels, restaurants, entertainment, and rental cars. The souvenirs, along with tourists' accumulated experiences, leave the United States and go back home with them.

These are not minor parts of our economy. According to the Institute of International Education, in the 2023-2024 school year, there were 502,291 international students enrolled in graduate school, 342,875 in undergraduate studies, and 242,782 international students in Optional Practical Training. NAFSA estimates that "international students studying at U.S. colleges and universities contributed $43.8 billion and supported 378,175 jobs to the U.S. economy during the 2023-2024 academic year." As Washington Post columnist Catherine Rampell notes in a recent column, last year the United States "sold more educational services to the rest of the world that it sold in natural gas and coal combined." I strongly recommend you read her column. It lays out the issue and its consequences far better than I am doing here.

Tourism is even larger. Statistica reports that "in 2024, there were 35.16 million overseas visitors to the [United States], up from the previous year's total of 31.47 million," and the International Trade Administration said, "international visitors have spent more than $253.9 billion on U.S. travel and tourism-related goods and services year to date (January through December 2024)." (That is both goods and services.)

This matters because the Trump administration is in the process of ruining both of these assets. The attacks on universities and the revocation of some student visas have implications that go far beyond their direct impact. The administration's message to foreign students is that the United States is no longer a safe or welcoming place for them, and we will soon see that message reflected in a declining number of students coming to the United States to study. That is dangerous on multiple levels. If they return to their countries, they will take with them lessons in freedom and democracy that will be good for their countries and their relationships with the United States. If they stay here, we get the benefit of their talent, and there is no shortage of stories about the contributions brilliant immigrants have made to our economy. From a trade perspective, however, it is bad for purely economic reasons. Declining numbers of foreign students cost our universities and our economy money and add to our trade deficit, the very thing Trump says he is trying to reduce.

The same thing is happening in tourism. China has already issued a travel warning about the dangers of visiting the United States, and Canadian travel south, which peaks in the winter, has dropped through the floor. We should expect European and other Asian tourist visits to decline as well. These declines will reduce our services trade surplus, which will mean a larger trade deficit. They also represent another missed soft-power opportunity. Welcoming foreign visitors, either temporarily as visitors or for a year or more as students, gives them an opportunity to see what the United States has accomplished economically and politically and to take that experience back to their own countries.

It is a fair point that the values the United States stood for and which we hope foreigners would learn during their time here-democracy, due process, and civil liberties-may not be the values of the current administration, and the lessons current students take back may be very different. But even if that is true, the economics remain unassailable. Education and tourism services are an important and positive part of our trade balance, and they are something we should be encouraging rather than disparaging.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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