Giant tech firms that dominate the stock market like Alphabet (Google), Meta (Facebook), Microsoft and Netflix are service businesses, to one extent or another, and Apple, Amazon, Nvidia and even Tesla all have large service components. So do banks, asset management companies, law firms, universities, health care, the entertainment industry, tourism, the news business and loads of other areas where the United States is an outstanding performer.
If the Trump administration were to start putting taxes on U.S. purchases of international services, other countries would be tempted to go tit-for-tat. The core of the modern U.S. economy — and of the stock market — would be vulnerable.
No wonder the European Union has added to its diplomatic arsenal an “anti-coercion instrument” that it informally calls its “big bazooka.” It’s a dry legalistic formulation with immense hidden power: The bazooka enables Europe to respond to economic bullying by cutting off or heavily taxing social media platforms and other advanced computer services, restricting intellectual property rights, as well as making it easier to move against traditional targets like imported goods and direct foreign investment. It’s been held in reserve as an ultimate weapon that is too dangerous to use casually because it would invite further retaliation and deprive Europeans of access to services they need themselves.
Oddly, the big bazooka originated in a European Union dispute with China, but it could be turned against the United States, which would be a tempting target. That’s because service industries, not manufacturing, tend to dominate advanced economies, and in this regard, the United States is a world leader. Nearly 80 percent of the domestic U.S. economy is devoted to services. In China, by contrast, services still constitute only a little over 50 percent of the economy, according to the International Monetary Fund.
The United States exports plenty of its services, too. In fact, the United States runs a big trade surplus in services. The enormous U.S. trade deficit in goods is the unfortunate focus of the Trump administration — unfortunate because most economists have no problem with the trade deficit, while they do have major issues with the Trump tariffs.
