Why an $8.8 trillion slice of the global economy escaped being hit by Trump's tariffs

• President Donald Trump's tariffs exclude services, focusing only on goods imported into the US.
• The US has a huge trade surplus in services, unlike its deficit in the trade of goods.
• Services account for over two-thirds of the US economy and 80% of private sector jobs.

There's something missing from President Donald Trump's "reciprocal" tariffs: services.

His tariffs only apply to goods imported into the US, overlooking the sector of the economy worth about $8.8 trillion globally last year. It encompasses industries from financial services and legal services to tourism and education.

It might seem strange for Trump to exclude a huge chunk of the US economy from one of his landmark policies, but there are several reasons he may have done so.

Services surplus

The US trade surplus in services was $293 billion in 2024, in stark contrast to the $1.2 trillion trade deficit in goods, Bureau of Economic Analysis data shows.

The Trump administration's formula for calculating its "Liberation Day" tariffs was ostensibly based on the US trade deficit in goods with other countries. If services had been factored in, the major economies the US exports services to would have faced lower tariffs.

Some of the country's biggest trading partners in terms of services are the UK, Ireland, and Canada.

"These flows are mostly determined by the fact that many US companies have large offices in these countries," Steve Hanke, a professor of applied economics at Johns Hopkins University and a former senior economist on President Ronald Reagan's Council of Economic Advisers, told Business Insider.

The White House could have made the case for tariffs on services to counter non-tariff constraints on US services.

"Although services are not subject to tariffs, they are subject to trade barriers such as nationality and local presence requirements," reads the website of the Office of the US Trade Representative. "These barriers severely limit the services export potential of US suppliers."

It also says the service industries account for more than two-thirds of GDP and 80% of private sector jobs in the US.

Purba Mukerji, an economics professor at Connecticut College, told BI that the US trade surplus in services is a "bright spot" in its balance of payments with the rest of the world. "Services are a good area for growth for the US and might remain so for a while," she said.

For Adnan Rasool, an assistant professor of political science at the University of Tennessee at Martin, the US does not impose tariffs on services because its surplus is so big: "We would just be shooting ourselves in the foot."

Another risk of service tariffs would have been retaliation from trading partners that would harm US service exporters, hurting a lucrative part of the economy.

Consumer confusion

Trump may have pursued sweeping goods tariffs because they're more tangible to consumers and easier to explain than duties on obscure services. They also align with his rhetoric around revitalizing US manufacturing and bringing factory jobs back to the US.

Rasool said: "When stuff from China is being tariffed, they see it and feel it in their wallets, but when you, say, start tariffing logistical support services for deep-sea internet cables, they cannot see it nor will they understand its impact on their wallets."

Bermuda bonus

The international financial services industry is heavily reliant on the US. Visa, Mastercard, and American Express are all based in the US, as are many major investment banks and asset managers.

The same is true for Big Tech companies that dominate the US stock market and represent a large piece of Americans' portfolios.

"Think of Facebook, Amazon or even Google getting hit with serious tariffs. That just cannot work for the US," Rasool said.

This is good news for countries such as Bermuda. The US imported services worth nearly $40 billion from the island nation in 2024, per BEA data.

Bermuda only imported $46 million of US goods last year, meaning it would likely have faced a much higher tariff rate than 10% if tariffs had included services.

"Indeed, a lot of Americans park their money in Bermuda," Hanke said. "This has resulted in a US services trade deficit of $30.6 billion with Bermuda. Luckily for Americans using Bermudan financial services, this deficit wasn't accounted for in Trump's nonsensical calculation."

'Murkier' distinctions

The difficulty of taxing services was probably a big reason for the White House to give them a pass on tariffs.

Ramesh Mohan, a professor of economic analytics and visualization at Bryant University, told BI: "Unlike tangible goods that cross borders and can be inspected, recorded, and taxed at ports of entry, services are often delivered digitally or remotely."

He said trying to establish where a service has actually been performed can be "complex" and "ambiguous."

"Even in goods trade, debates persist over definitions — what constitutes 'manufacturing' versus 'assembly,'" Mohan said. "With services, such distinctions are even murkier, making enforcement of tariffs logistically difficult."

Many large multinational firms have US-based subsidiaries, even if their services are performed offshore, he said. "This blurs the lines of jurisdiction and makes it even more difficult to determine where the service was actually carried out."