The Cabinet Office published "World Economic Trends 2025 I," Chapter 2, Section 3, providing a detailed analysis of changes in the structure of U.S. services trade and income/investment structure.
Competitive Structure of Services Trade
U.S. services trade has consistently maintained a surplus, demonstrating strong competitiveness particularly in digital and intellectual property services. Digital and intellectual property services account for over 41% of total services exports, with major categories including "consulting services and R&D," "intellectual property licensing fees," "information and communication services," and "financial services."
Particularly noteworthy is the rapid expansion of services exports to Ireland, reaching $89.7 billion (3rd largest), with digital and intellectual property services accounting for 89% of export share. This represents a 124% increase since 2014, significantly exceeding the global average growth of 71%. This growth is attributed to Ireland's low corporate tax rates, young population with high education levels, and English-speaking advantages.
Historic Transformation of Primary Income Balance
In 2024, the U.S. primary income balance turned negative for the first time since statistics began in 1960, marking an important turning point in U.S. economic history. By investment type structure, receipts consist of 44.3% direct investment, 36.1% portfolio investment, and 19.0% other investment, while payments comprise 50.4% portfolio investment, 24.0% direct investment, and 23.6% other investment, clearly showing asymmetry.
Background factors include the Tax Cuts and Jobs Act (TCJA) of 2017 promoting repatriation of over $2.6 trillion in overseas undistributed profits to the U.S., changes in reinvestment income patterns since 2018, and increased bond interest payments (accounting for nearly 70% of the payment side). U.S. Treasury interest payments account for 46.7% of the total (2024), reflecting increased funding costs as a reserve currency country.
Expansion of Net External Debt and Narrowing Yield Differentials
The U.S. Net International Investment Position (NIIP) expanded to minus 89.9% of GDP in 2024, with net external debt becoming serious. Three-quarters of the expansion from minus 61.2% in 2022 to minus 70.7% in 2023 was due to valuation effects, with portfolio investment accounting for 66% of net external debt.
Simultaneously, the yield differentials that the U.S. has enjoyed, called "exorbitant privilege," are also narrowing. Direct investment yield differentials narrowed from a 2018 peak of 4.9 percentage points to 3.7 percentage points in 2024, while portfolio investment has remained stable at around 1 percentage point since 2008, and other investment has fluctuated around 1 percentage point since 2000.
Direct Investment Structure and Phantom FDI Issues
In outward direct investment regional structure, major destinations shifted from the UK, Canada, Netherlands, Bermuda, and Japan in 2000 to the UK, Netherlands, Luxembourg, Ireland, and Canada in 2023, with Japan's share declining significantly from 4.3% (5th place) to 0.9%.
Conversely, in inward direct investment to the U.S., Japan leads with 14.5%, followed by Canada (12.2%), Germany, the UK, and France. Japan's leading position results not from new investment increases but from accumulated reinvestment of local subsidiary profits, with manufacturing investment accounting for 41.2% of the total, representing substantive investment.
An important issue is the expansion of Phantom FDI (investment without substance), with non-financial holding companies accounting for 48.8%. As of 2019, 40% of global FDI consists of Phantom FDI, highlighting the challenge of increased investment that does not reflect genuine economic activity.
The article concludes that while U.S. services trade competitiveness remains solid, historic changes are occurring in investment income structure, with signs of change in the "exorbitant privilege" as a reserve currency country.