November 28, 2018
U.S. Tariff Policy: Overview
Introduction
Figure 1. Weighted Average Applied Tariff Rates
A tariff is a customs duty levied on imported and exported
goods and services. Historically, countries used tariffs as a
primary means of collecting revenue. Today, other taxes
account for most government revenue in developed
countries. Tariffs are now typically used to protect domestic
industries or as leverage in trade negotiations and disputes.
The U.S. Constitution empowers Congress to set tariffs, a
power that it has partially delegated to the President. The
United States is also a member of the World Trade
Organization (WTO) and a party to 14 free trade
agreements (FTAs), which include specific tariff-related
commitments. Congress and the President thus create U.S.
tariff policy within the context of a rules-based global
trading system.
Source: WTO and CRS.
Rules-Based Global Trading System
Note: Weighted average of applied tariff rates globally and among
The rules-based global trading system was established
the five largest economies by GDP in 2016.
following World War II. It began as the General Agreement
on Tariffs and Trade (GATT), which was later integrated
U.S. Tariff Policy
into a larger set of agreements establishing the WTO. This
system has aimed to reduce trade barriers and prevent trade
Who Makes U.S. Tariff Policy?
wars by establishing rules for the use of tariff and nontariff
The Constitution grants the power to lay and collect duties
barriers to trade. Among this system’s core rules with
and to regulate commerce with foreign nations to the
regard to tariffs are:
Congress. The Constitution grants the authority to negotiate
international agreements to the President. Since tariffs are
Nondiscrimination. Under the most-favored nation
no longer a primary source of revenue, they have
(MFN) rule, a country must extend any trade
increasingly become an instrument of U.S. international
concession, such as a reduced tariff rate, granted to one
trade and foreign policy. As such, Congress now works
country member to all other WTO members. There are
with the President to set tariff policy by granting authority
exceptions, such as preferential rates for FTAs, special
to negotiate trade agreements and to adjust tariffs in certain
treatment for developing countries, and WTO-allowed
other circumstances.
responses to unfair trading practices.
Presidential Trade Promotion Authority (TPA). Prior to
Binding Commitments. Through multilateral
the 1930s, Congress usually set tariff rates itself. As U.S.
negotiations, countries bind themselves to ceilings on
and global tariff rates increased during the Great
tariff rates for specific imports. That ceiling is called the
Depression, U.S. exports decreased. Congress responded by
bound rate, which can be higher than actual applied
authorizing the President to negotiate reciprocal trade
rates. Lowering bound rates has been a general goal of
agreements that reduced tariffs through proclamation
each of the multilateral negotiations.
authority up to a pre-set boundary. Hence, such an
Transparency. The WTO requires members to publish
agreement could enter into force without further
and report their tariff rates and other trade regulations.
implementing legislation. However, nontariff barriers to
trade (such as discriminatory technical standards) became a
Safety Valves. The WTO agreements permit members
greater focus of trade negotiations in the late 1960s. As a
to raise tariffs to address unfair trade practices and to
result, it became difficult to predict the substance of the
allow domestic industries to adjust to sudden surges in
negotiations and authorize changes to existing U.S. laws by
imports in some circumstances.
proclamation before the negotiations took place. Congress
Following the establishment of the GATT in 1947 and the
addressed this challenge in 1974 by establishing expedited
WTO in 1995, global tariff rates declined significantly,
procedures to implement more complicated future trade
spurring trade and opening markets for U.S. exports. Since
agreements. Under these procedures, currently known as
the establishment of the WTO, exports of U.S. goods have
Trade Promotion Authority (TPA), Congress establishes
increased more than 170%.
U.S. trade negotiating objectives as well as consultation and
notification requirements. If the President satisfies these
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U.S. Tariff Policy: Overview
objectives and requirements, implementing legislation for
attempted to convince advanced emerging economies, such
an agreement may receive expedited treatment including an
as China, India, and Brazil, to commit to lower their bound
“up or down vote” without amendment. The Bipartisan
tariff rates, which they declined to do. This dispute was
Comprehensive Trade Priorities and Accountability Act of
arguably one of the reasons that the Doha round of
2015, the current TPA, is in effect through June 2021.
negotiations was unable to produce an agreement.
Low U.S. tariff rates have also served as an instrument to
Presidential Discretionary Authority over Tariff Rates.
achieve other foreign policy goals. For example, to
In dozens of statutes, Congress has empowered the
encourage global economic development, Congress created
President to adjust tariff rates in response to specific trade-
the Generalized System of Preferences (GSP), which
related concerns that touch on issues of executive interest,
authorizes the President to give unilateral duty-free
such as foreign policy and national security, or require an
treatment to some products from some developing
administrative finding by a U.S. agency. For example,
countries. The United States has also pursued FTAs as part
Section 232 of the Trade Expansion Act of 1962 empowers
of broader foreign policy and security goals.
the President to adjust tariffs on imports that threaten to
impair U.S. national security. Section 5(b) of the Trading
with the Enemy Act and Section 203 of the International
Key Dates in U.S. Tariff History
Emergency Economic Powers Act empower the President
1913: Underwood Tariff Act reimposes federal income tax
in a time of war or emergency to impose tariffs on all
and lowers tariff rates from roughly 40% to 25%.
imports. Section 201 of the Trade Act of 1974 empowers
Revenue now comes primarily from income taxes.
the President to raise tariff rates temporarily when the U.S.
International Trade Commission (ITC) determines that a
1930: Tariff Act of 1930, known as the Smoot-Hawley Tariff,
sudden import surge has caused or threatened serious injury
raises U.S. tariffs to their highest levels since 1828. This
to a U.S. industry. Congress has also empowered U.S.
was the last tariff act in which Congress set rates.
agencies to impose duties to offset injurious unfair trade
1934: Reciprocal Tariff Act delegates to the President the
practices, based on industry petitions or through initiation
power to negotiate bilateral, reciprocal trade
by the Commerce Department.
agreements. Renewed several times.
1947: The United States and 23 other countries enter the
How Is U.S. Tariff Policy Administered?
GATT to lower tariffs and other trade barriers.
U.S. Customs and Border Protection (CBP) administers the
1962: Trade Expansion Act delegates to the President the
collection of tariffs at U.S. ports of entry according to rules
power to cut tariffs generally up to 50% and to cut up
and regulations prescribed by the Secretary of the Treasury.
to 80% or eliminate tariffs on certain categories of
products.
When a good enters a U.S. port of entry, merchandise is
classified and tariffs are assessed using the U.S.
1976: The United States institutes its Generalized System of
Harmonized Tariff Schedule (HTS), a compendium of tariff
Preferences (GSP), establishing preferential tariff rates
rates based on a globally standardized nomenclature.
for developing countries.
Today, importers self-classify and declare the value or
1995: The United States enters the WTO. This is the last
quantity of their goods. CBP reviews the paperwork,
time GATT/WTO members multilaterally agree to
performs occasional audits, and then collects any applicable
major reductions in tariff rates.
tariffs or penalties as well as any administrative fees.
Finally, CBP deposits any revenue from tariffs or other
penalties into the General Fund of the United States.
Issues for Congress
For more than 80 years, Congress has delegated extensive
What Has U.S. Tariff Policy Been?
tariff-setting authority to the President. This delegation
Over the past 70 years, tariffs never accounted for much
insulated Congress from domestic pressures and led to an
more than 2% of total federal revenue. In 2016, for
overall decline in global tariff rates. However, it has meant
example, CBP collected $32 billion in tariffs, accounting
that the U.S. pursuit of a low-tariff, rules-based global
for 1.08% of total federal revenue. Instead, the United
trading system has been the product of executive discretion.
States has used its tariff policy to encourage global trade
While Congress has set negotiating goals, it has relied on
liberalization and pursue broader foreign policy goals.
Presidential leadership to achieve those goals.
Since 1934, the United States has reduced or eliminated
The current Administration has been openly critical of low-
many tariffs as part of bilateral and multilateral trade
tariff policies and has made greater use of its discretionary
agreements. By supporting the creation of the GATT and
authority to increase tariffs on certain goods imported from
the WTO, the United States sought to reduce tariff rates
key U.S. trading partners with little Congressional input.
globally within a rules-based trading system. In 2016, the
Congress may want to decide whether such actions, taken
simple mean of U.S. tariffs applied across all products was
under authority that it has delegated, reflect its priorities.
3.3%, the lowest among the top five global economies by
Other issues of potential interest include whether to
GDP. Roughly 70% of all products enter the United States
examine more closely the costs or benefits of changing U.S.
duty free.
tariff rates.
U.S. reductions in tariff rates have not always inspired
others to follow. During the most recent (Doha) round of
WTO trade negotiations, the United States unsuccessfully
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U.S. Tariff Policy: Overview
Christopher A. Casey, Analyst in International Trade and
Finance
IF11030
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