In a tariff war, services will be hit as well

Trump's tariffs are focused on goods, but the bundling of goods with services and supply chain shifts will affect the services sector.

- Vikram Khanna

So far, most discussions on trade have been focused on trade in goods. Surprisingly little has been said about services, which are not only often closely linked with goods but are also more important for many countries, including Singapore.

The services sector, which encompasses everything that does not come from a factory, a farm or from under the ground and includes industries such as healthcare, finance, IT, education, tourism, logistics and entertainment, accounts for more than two-thirds of the global economy. As with most other advanced economies, more than 70 per cent of Singapore's GDP comes from the services sector, which employs more than 80 per cent of the workforce.

The ongoing US-induced tariff war is still on. Even with tariffs on China now reduced, at 30 per cent they are still high. Moreover, the reduction is only for 90 days, after which nobody knows what will happen, which is also true of the tariffs on other countries.

The US tariffs are centred on trade in goods, with services being spared. This is not surprising. While the US had a US$1.2 trillion (S$1.6 trillion) trade deficit in goods in 2024, which it wants to reduce, it enjoyed a US$295 billion trade surplus in services, which it wants to maintain, or preferably increase.

But any changes to the volumes and patterns of trade in goods, whether arising from tariffs or not, have a profound impact on services.

BLURRED LINES BETWEEN GOODS AND SERVICES

First, the line between goods and services in the modern economy is increasingly blurred. For example, the smartphone, which is a good, comes bundled with apps, which are services. Other smart appliances and devices from fridges and ovens to TVs, cameras and even door locks also have embedded software, which makes them part goods, part services.