specialty occupation (H-1B) visa holders if they have recently made US workers redundant. Given the binding aggregate quota on H-1B visas, a restriction on employment in a particular sector probably has limited impact, other than on foreign workers with skills that are specific to the restricted sectors. Thus the restrictions on employing or contracting foreign services providers in specific areas (e.g. financial services) are not as costly for both host and source as the increasing social and political aversion to immigration of service providers and the possibility of retaliatory restrictions. As Lloyd Blankfein, the chief executive of Goldman Sachs warned, the company had 200 people in the US on H-1B visas but also 2000 employees who worked overseas but paid US taxes; the latter could be the target of retaliatory measures by other governments.<sup>14</sup> Finally, in the longer term, subsidies to banks are probably less damaging than financial protectionism.<sup>15</sup> The former are temporarily necessary to ensure the stability of the financial system. The latter seriously erode the case for openness. Inducing national banks to lend domestically in a crisis deprives developing countries in particular of capital when they most need it and greatly strengthens the case for financial self-sufficiency.

# **V. CONCLUSION**

Using new trade data from the United States, we show that services trade is weathering the current crisis much better than goods trade. The currently available evidence from other OECD countries does not contradict this picture. Particularly striking is the continued growth of trade in a range of business, professional, and technical services. We find that developing countries like India, which are relatively specialized in business process outsourcing and information technology services, have suffered much smaller declines in total exports to the United States than countries like Brazil and China and regions like Africa which are specialized in exports of goods, transport services or tourism services.

A key area for future research is to understand the reasons for the resilience of services trade. One possibility is that this resilience reflects delayed adjustment, both domestically and internationally. While some services industries like construction are affected more quickly in a recession, other services industries tend to adjust more slowly.<sup>16</sup> Alternatively, as we have conjectured, resilience could be a consequence of certain features of services or services trade itself: demand for a range of traded services is less cyclical, and services trade and production are less dependent on external finance. We clearly need more thorough investigation of these hypotheses.

We have also argued that even though few protectionist measures have so far been taken in services, the growing political and social aversion to outsourcing is a threat to trade. This

> 14 Francesco Guerrera, “Blankfein attacks bankers’ pay,” Financial Times, April 8, 2009.

> 15 See, for example, Anthony Faiola and Mary Jordan, “British Bank To the World Takes Its Cash Back Home: Battered RBS Caught In Protectionist Storm,” Washington Post, March 28, 2009.

> 16 See, for example, Jiang et al. (2009).  It is also possible that payment for services occurs with a lag so that slackening demand is only gradually reflected in measured payments.

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