America’s service-powered economy—now nearly three-quarters of GDP and over $1 trillion in exports—stands to suffer collateral damage from the Administration’s focus on tariffs on physical goods. Goods and services are often complementary, meaning tariffs on goods affect not only the things Americans buy, but also the jobs on which they increasingly rely. Or, to channel President Trump, tariffs could leave America’s children not just with fewer Barbies, but with fewer of the careers, from astronaut to zoologist, that Barbie has modeled.
More seriously, consider Boeing. One of America’s largest manufacturing companies, it also provides maintenance, repair, parts logistics, and digital services throughout each plane’s lifecycle. This integrated ecosystem connects design, engineering, production, and aftermarket support. When tariffs disrupt aircraft component flows, they simultaneously jeopardize billions in related service exports.
The technology sector demonstrates even greater vulnerability. Apple’s business model has fundamentally transformed from its hardware origins. Its services segment—including iCloud, the App Store, and Apple Music—generated $96 billion in 2024, growing 13 percent year-over-year with nearly twice the profit margin of its hardware division. Yet this lucrative services business relies on hardware manufactured across more than 40 countries.
Cloud computing giants face similar exposure. AWS, Microsoft Azure, and Google Cloud maintain vast global infrastructure to deliver digital services. These companies are investing huge sums in AI capabilities. Microsoft committed $80 billion for 2025, for example, with specialized components sourced worldwide. Google, meanwhile, designs and builds its own processors to run its cloud and AI in cooperation with companies around the world. Tariffs on these components undermine America’s AI leadership.
Tariffs are also beginning to threaten services directly, as the recent announcement of 100 percent tariffs on “movies produced in Foreign Lands” illustrates. Films are intellectual property, meaning services, not goods. They involve global value chains spanning production, finance, distribution, and digital delivery. American movies consistently run large trade surpluses. The almost-certain retaliatory tariffs can only hurt the industry and the jobs they support.
The U.S. isn’t the only one playing with damaging trade barriers, although ours may be more self-sabotaging than others. While America fixates on physical goods without considering the impact on services, our trading partners are attacking services directly. The European Union’s Digital Markets Act and Digital Services Act impose onerous regulatory burdens that disproportionately affect U.S. tech giants, functioning as de facto tariffs on American digital services exports.
The siren song, for some, of tariffs is understandable. In the EU, it serves as old-fashioned protectionism. In the US, it’s a response to economic change. Manufacturing employment plummeted between 2000-2010 and never recovered, devastating many communities. But Secretary Lutnick’s vision of Americans assembling iPhone components misunderstands economic reality and what would truly benefit workers. The future lies not in recreating 1950s manufacturing jobs but in embracing our dynamic, services-oriented economy while addressing transitional challenges.
Real solutions begin with accepting that growing economies are dynamic. We can’t recapture the past. Just as manufacturing overtook agriculture as the dominant employer in the early 20th century, services have now surpassed manufacturing. These are not low-wage, fast food jobs. These are professional and business services, where average earnings reached $44 per hour in April 2025, compared to $35 in manufacturing.
The path forward requires policies that embrace economic evolution rather than resist it. This means addressing housing barriers that limit worker mobility, expanding remote work opportunities in left-behind regions, and focusing on building domestic capacity through research investment and incentives—not counterproductive tariff barriers.
America’s continued prosperity depends on recognizing the economy we actually have, not the one we remember through rose-colored glasses. By understanding how dynamic economies naturally change, and crafting policies that work with, not against, this fundamental reality, we can ensure the benefits of growth reach all Americans, not just those in already-thriving regions.
Scott Wallsten is President and Senior Fellow at the Technology Policy Institute and also a senior fellow at the Georgetown Center for Business and Public Policy. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. He was the economics director for the FCC's National Broadband Plan and has been a lecturer in Stanford University’s public policy program, director of communications policy studies and senior fellow at the Progress & Freedom Foundation, a senior fellow at the AEI – Brookings Joint Center for Regulatory Studies and a resident scholar at the American Enterprise Institute, an economist at The World Bank, a scholar at the Stanford Institute for Economic Policy Research, and a staff economist at the U.S. President’s Council of Economic Advisers. He holds a PhD in economics from Stanford University.
