Updated December 19, 2018
U.S. Trade Policy: Background and Current Issues
U.S. Trade Policy in Context
Figure 1. U.S. Goods and Services Trade
Congress plays a major role in U.S. trade policy through
constitutional authority over tariffs and foreign commerce
(Article 1, Section 8), legislative activity, and oversight
responsibility. Since World War II, U.S. trade policy has
generally sought to:
liberalize markets by reducing trade and investment
barriers through agreements and negotiations;
foster an open and nondiscriminatory rules-based
trading system, including through the World Trade
Organization (WTO);
enforce trade commitments and laws;
support economic growth; and
offer relief to U.S. firms and workers affected by
import competition and “unfair” foreign trade
Source: Bureau of Economic Analysis and Census Bureau.
practices.
Components of U.S. Trade Policy
In its first two years, the Trump Administration’s trade
policy actions created new dynamics that will continue to
Congress sets U.S. trade negotiating objectives, enacts trade
influence trade issues in the 116th Congress, including:
laws, programs, and agreements, and oversees executive
significant unilateral tariff actions, a renegotiated North
trade functions conducted by a range of federal agencies.
American Free Trade Agreement (NAFTA), and economic
By statute, the U.S. Trade Representative (USTR) is the
engagement and confrontation with China.
lead U.S. trade negotiator and coordinates trade policy
Economics of Trade
through an interagency process with formal public and
private advisory input. Key policy components include:
Economic theory holds that international trade is mutually
beneficial overall, but potentially with unevenly distributed
Trade rules-setting, liberalization, and enforcement.
benefits and concentrated costs. Countries specialize by
Negotiation of trade agreements to open markets and set
increasing production and exporting goods and services in
rules on trade and investment; enforcement of
which they have a higher relative comparative advantage
commitments via dispute settlement and U.S. trade laws.
through skills or resources, and importing those unavailable
Export promotion and controls. U.S. support for
export financing, market research, advocacy, and trade
domestically or less efficiently produced. Trade benefits
missions; licensing and control of strategic exports.
can include more efficient resource allocation, increased
Customs, trade remedies, trade adjustment.
competition, economies of scale, job growth, lower prices,
Regulation of borders; laws to address adverse effects of
and more consumer choice. Costs can include job and firm
imports on U.S. industries, national security threats,
losses through greater competition from imports. The
balance of payments, and “unfair” barriers to U.S.
economic impact of trade liberalization is difficult to
exports; assistance for dislocated workers and firms.
measure and widely debated, in part because many other
Trade preferences. Duty-free access to U.S. markets
factors influence economic activity, often with greater
for eligible developing countries and products, intended
effect. For example, U.S. manufacturing employment is
to encourage trade and spur economic growth.
likely more affected by productivity boosting technological
Investment. Protection (through investment treaties and
advancements than by expanded trade, which may result
trade agreements) and promotion; examination of
from trade liberalization.
inbound FDI for national security implications.
U.S. Trade Trends
U.S. Trade Laws and Policy Tools
The United States is the world’s largest economy, trading
The Trump Administration has placed increased emphasis
nation, and foreign direct investment (FDI) source and
on the trade deficit, which it views as an indicator of
destination (stock basis). U.S. trade has expanded (Figure
foreign “unfair” trade practices with potential implications
1) and its markets and production have become more
for U.S industry and jobs. It has also taken a more assertive
integrated especially with emerging economies. The 2017
approach to enforcing U.S. trade laws, proposing or
top U.S. trading partners were China, Canada, Mexico,
imposing tariffs or restrictions based on investigations
Japan, Germany, and the European Union (EU). The United
under previously infrequently-used U.S. trade laws, such as:
States has a long-running overall trade deficit (imports
Section 301 (Trade Act of 1974) on barriers to U.S exports
exceed exports); the trade deficit for goods outweighs the
caused by China’s intellectual property rights (IPR)
services trade surplus. The causes and consequences of the
practices, Section 232 (1962 Trade Act) on the national
trade deficit are debated. Most economists argue it is more
security implications of aluminum and steel imports and
closely linked with macroeconomic variables (e.g., savings
potentially auto and uranium imports (reviews pending),
and investment patterns) than trade policies or agreements.
and Section 201 (1974 Trade Act) on potential injury from
surges in imports of solar panels and washing machines.
Antidumping and countervailing duty investigations have
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U.S. Trade Policy: Background and Current Issues
also been used to address unfairly traded imports. U.S.
UK. U.S. motivations for the new talks include concerns
trading partners have responded to these actions by
over disadvantages to U.S. exporters from non-U.S. trade
negotiating exceptions to U.S. tariffs, offering other
agreements, including among the remaining 11 TPP
concessions, imposing retaliatory tariffs, and launching
countries and between the EU and Japan. The scope of the
WTO complaints against the United States.
new negotiations is unclear, but the Administration appears
Trade Promotion Authority
to be using the threat of new tariffs to spur talks.
Congress and the President generally work together to
USMCA is the largest, most significant, modern, and
negotiate and implement U.S. trade agreements. Beginning
balanced trade agreement in history... In the United States,
with the Reciprocal Trade Agreements Act of 1934,
the new trade pact will support high-paying manufacturing
Congress delegated limited tariff authority to the President
jobs and promote greater access for American exports. –
to enter into reciprocal trade agreements to reduce tariffs
President Trump, Nov. 30, 2018.
within pre-approved levels through proclamation authority.
As nontariff trade barriers grew, Congress adopted “fast
U.S.-China Trade Relations
track” authority in the Trade Act of 1974 to provide U.S.
trade negotiating objectives and expedited legislative
China, the largest U.S. trade partner and contributor to the
consideration for implementing bills on future trade
U.S. trade deficit, arguably constitutes the most complex
agreements while preserving its constitutional prerogatives.
U.S. trading relationship. The country’s unprecedented
Called Trade Promotion Authority (TPA) since 2002, it was
economic rise has created significant U.S. commercial
renewed in 2015 (P.L. 114-26) through July 1, 2021.
opportunities, but the state’s continued role in economic
The World Trade Organization
activity raises major concerns over unfair competition and
The current rules-based, multilateral trading system is
challenges to existing global trading architecture. U.S.
rooted in the WTO, established in 1995 to succeed the
concerns include China’s cyber and other theft of U.S. IP,
General Agreement on Tariffs and Trade (GATT). Formed
technology transfer practices, and inadequate market
in 1947, the GATT was part of the post-WWII effort led by
access. The Administration imposed increased tariffs on
the United States with cooperation from major European
$250 billion of Chinese imports to pressure China to alter
countries to build a stable, open, and prosperous global
its policies. China retaliated with tariffs on $110 billion of
economy. WTO agreements cover trade in goods, services,
U.S. exports. Negotiations are ongoing.
and agriculture; remove tariff and nontariff barriers; and
Selected Issues for Congress
establish rules and disciplines on IPR, dispute settlement
Tariff Actions. How do U.S. and retaliatory tariff increases
(DS), and other trade-related issues. Core principles include
affect U.S. industries that are sensitive to competition from
nondiscrimination and transparency. Issues such as
imports, other domestic producers and exporters, and
consensus decisionmaking, developing country exceptions,
consumers, and U.S. trade relations more broadly? Are such
and noncompliance with notification requirements frustrate
actions WTO compatible? Is further escalation likely?
some members, leading some to call for or propose reforms.
U.S.-China Trade Future. Depending on its outcome, the
Vexed by perceived overreach in the DS system, the Trump
U.S.-China tariff standoff, in particular, has major potential
Administration has continued the Obama Administration’s
implications for global supply chains and economic growth.
practice of refusing to agree to the naming of Appellate
What are potential paths forward?
Body jurists, a gap that could halt the DS system.
Trade Agreements. How does Congress view potential
Trade Agreement Negotiations
shifts in U.S. FTA policy stemming from USMCA? Do
In light of constraints on the WTO, bilateral and regional
these shifts align with TPA? What are priorities for future
trade agreements are more prominent today with over 270
U.S. trade negotiations, and does the current TPA reflect
them? How do non-U.S. FTAs affect the U.S. economy?
in force and notified to the WTO. The United States has 14
Trade and Jobs. Trade liberalization generally supports
free trade agreements (FTAs) with 20 countries in force,
economic growth; it has both costs and benefits. Are U.S.
covering market access and rules, usually exceeding WTO
Trade Adjustment Assistance programs adequately funded
commitments. The 1994 NAFTA initiated a new generation
and effective to help those hurt from trade liberalization?
of FTAs and shaped multilateral negotiations. The 2012
Trading System. U.S. leadership helped establish the
U.S.-South Korea FTA (KORUS) has the most extensive
current rules-based global trading system and propel
commitments among existing U.S. FTAs.
consideration of rules on new issues such as digital trade.
President Trump has expressed disappointment with U.S.
Does this system still benefit the United States?
FTAs, arguing they contribute to U.S. trade deficits. He has
Trade and Security. Concerns exist about foreign efforts
taken specific steps on U.S. FTA policy, including:
to obtain U.S. technology. New 2018 laws, the Foreign
withdrawing from the proposed Trans-Pacific
Investment Risk Review Modernization Act (FIRRMA) and
Partnership (TPP) in January 2017;
the Export Controls Act (ECA), respectively, provide more
negotiating select modifications to KORUS, scheduled
scrutiny of inward FDI and renew dual-use export controls.
to take effect in 2019;
Are these tools sufficient? Is restricting FDI problematic?
negotiating significant revisions to NAFTA.
The renegotiated NAFTA, signed on November 30, 2018,
Shayerah Ilias Akhtar, Specialist in International Trade
and renamed the U.S.-Mexico-Canada Trade Agreement
and Finance
(USMCA), would require implementing legislation to take
Ian F. Fergusson, Specialist in International Trade and
effect. USMCA addresses new issues, such as digital trade
Finance
and state-owned enterprises, increases North American
Brock R. Williams, Specialist in International Trade and
content requirements for vehicles, expands market access in
agriculture, and reduces U.S. obligations in areas such as
Finance
investment and government procurement.
IF10156
The Administration also notified Congress of its intent to
begin negotiations under TPA with Japan, the EU, and the
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U.S. Trade Policy: Background and Current Issues
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https://crsreports.congress.gov | IF10156 · VERSION 15 · UPDATED