Services – The largely invisible part of trade

Following the global financial crisis, global trade openness slowed abruptly, bringing an end to the “golden era” of trade, giving way to more cautionary approaches to trade integration. The risk of greater protectionism and geopolitical tensions is fuelled by recent policy developments out of the United States. But much of this shift, and the surrounding policy debate, has focused on trade in goods.

What frequently receives less coverage, however, is trade in services – the often less visible but growing component of international trade. Over the past two decades, and particularly since the early 2010s, trade in services has grown as a share of global trade to a quarter of total exports.

Yet because of its intangible characteristics and the varying ways in which services are traded, the value and extent of trade in services are not fully captured.

The ability for services to be delivered digitally and consumed immediately means that trade in services transcends physical products at national borders – the typical collection points for tracking trade. Trade in services occurs in some form or another in every aspect of the economy, from telecommunications, health, and professional services to education, tourism, and retail.

Further, evolving in parallel with the digitisation of economies, the scope of what is understood as services trade continues to expand with services further embedded and integrated into goods trade. The Organisation for Economic Co-operation and Development’s (OECD) Trade in Value Added (TiVA) database indicates that services account for more than 50 percent of the value added in gross exports.

The World Trade Organization (WTO) provides a framework for understanding and measuring trade in services. This framework categorises trade by its mode of supply (i.e., how the service is delivered) rather than by the actual service provided:

• Mode 1: Cross-border supply, e.g., a New Zealand consultancy provides research services, only online, to another country
• Mode 2: Consumption abroad, e.g., an international student studying at a New Zealand university, or an overseas tourist visiting New Zealand
• Mode 3: Commercial presence, e.g., a New Zealand-owned hotel group sets up a hotel overseas
• Mode 4: Movement of natural persons, e.g., a New Zealand construction company travels abroad to provide a service.

While this provides a structured approach to understanding what services trade is, actually measuring trade in services remains complicated.

Given that trade in services does not involve tangible products entering and leaving countries, statistics on trade in services are largely clouded by caveats and also cannot keep pace with general services growth. It is also difficult to differentiate the value of services that are integrated into goods (e.g., the installation service of foreign machinery would generally be captured in goods trade, not services). Much of services trade data relies on balance of payments information that excludes Mode 3 services trade and likely underestimates the true value of trade in services.

Existing datasets represent only estimates, and this poses challenges for making informed policy decisions.

Despite not holding the same robustness as statistics on good trade, the understanding of trade in services is improving. For the first time, the WTO has included projections for commercial services trade in their April 2025 Global Trade Outlook. Although not directly affected by the current pressure on international trade, further underlining the importance and value of services trade, the global volume of commercial services trade is forecast to grow by four percent in 2025. This is much higher than the expected decline in merchandise trade of 0.2 percent.

The WTO released an experimental dataset in 2021 in an effort to create an established methodology for measuring services trade. It found that globally most trade in services occurs through Mode 3 – representing around 56 percent of services exports in 2022. However, trade in digitally delivered services captured under Mode 1 grew the most between 2005 and 2022.

Domestically, New Zealand publishes statistics on services trade by combining a number of surveys and datasets to create estimates. In the year ended December 2024, New Zealand exported an estimated $30.59 billion of total services. This includes estimates of the different types of services exported, although not directly reported in line with the WTO’s modes of supply, which were last reported on in 2011.

Growth in services trade has been a consistent engine of growth for international trade, particularly since the early 2010s. Despite looming concerns of a breakdown in international trade in services is forecast to continue growing>in services is forecast to continue growing at a much faster rate than merchandise trade, reiterating its crucial role in modern trade relationships. The current volatile trade environment emphasises the need for further developments in measuring the full extent of trade in services. Without it, perspectives of trade can be distorted, and prioritisation misaligned.