Updated July 22, 2019
U.S. Trade Policy: Background and Current Issues
U.S. Trade Policy in Context
running overall trade deficit (imports exceed exports); the
trade deficit for goods outweighs the services trade surplus.
Congress plays a major role in U.S. trade policy through
The causes and consequences of the trade deficit are
constitutional authority over tariffs and foreign commerce
debated. Most economists argue it is more closely linked
(Article 1, §8). Since World War II, U.S. trade policy has
with macroeconomic variables (e.g., savings and
generally sought to:
investment patterns) than trade policies or agreements.
liberalize markets by reducing trade and investment barriers
through agreements and negotiations;
Components of U.S. Trade Policy
foster an open and nondiscriminatory rules-based trading
Congress sets U.S. trade negotiating objectives, enacts trade
system, including through the World Trade Organization
laws, programs, and agreements, and oversees executive
(WTO);
trade functions conducted by a range of federal agencies.
enforce trade commitments and laws;
By statute, the U.S. Trade Representative (USTR) is the
support economic growth; and
lead U.S. trade negotiator and coordinates trade policy
offer relief to U.S. firms and workers from import
through an interagency process with formal public and
competition and “unfair” foreign trade practices.
private advisory input. Key policy components include:
The Trump Administration’s trade policy actions continue
Trade rules-setting, liberalization, and enforcement.
to present legislative and oversight issues for the 116th
Congress, including on: significant unilateral tariff actions,
Negotiation of trade agreements to open markets and set
a renegotiated North American Free Trade Agreement
rules on trade and investment; enforcement of commitments
(NAFTA), and economic engagement and confrontation
via dispute settlement and U.S. trade laws.
with China and other trading partners.
Export promotion and controls. U.S. support for export
Economics of Trade
financing, market research, advocacy, and trade missions;
licensing and control of strategic exports.
Economic theory holds that international trade is mutually
Customs, trade remedies, trade adjustment. Regulation
beneficial overall, but potentially with unevenly distributed
of borders; laws to address adverse effects of imports on
benefits and concentrated costs. Countries specialize by
U.S. industries, national security threats, balance of
increasing production and exporting goods and services in
payments, and “unfair” barriers to U.S. exports; assistance
which they have a higher relative comparative advantage
for dislocated workers and firms.
through skills or resources, and importing those unavailable
Trade preferences. Duty-free access to U.S. markets for
domestically or less efficiently produced. Benefits of trade
eligible developing countries and products, intended to
can include more efficient resource allocation, competition,
economies of scale, jobs, and consumer choice, as well as
encourage trade and spur economic growth.
lower prices. Costs can include job and firm losses through
Investment. Protection (through investment treaties and
greater competition from imports. The economic impact of
trade agreements) and promotion; examination of inbound
trade liberalization is difficult to measure and widely
FDI for national security implications.
debated, in part because many other factors influence
U.S. Trade Laws and Policy Tools
economic activity, often with greater effect. For example,
The Trump Administration has placed increased emphasis
U.S. manufacturing employment is likely more affected by
on the trade deficit, which it views as an indicator of
productivity through technological advancements than by
foreign “unfair” trade practices with potential implications
expanded trade, which may result from trade liberalization.
for U.S. industry and jobs, and is more assertively enforcing
Figure 1. U.S. Goods and Services Trade
U.S. trade laws. The Administration is proposing or
imposing tariffs or restrictions based on investigations
under previously infrequently used U.S. trade laws such as:
Section 301 (Trade Act of 1974) on barriers to U.S exports
caused by China’s intellectual property rights (IPR) and
industry policy practices (the Administration applied tariffs)
and France’s recently-passed digital services tax (launched
investigation);
Section 232 (1962 Trade Act) on the national security threat
posed by imports of aluminum and steel (applied tariffs and
Source: Bureau of Economic Analysis and Census Bureau.
quotas), autos and auto parts (possible import restrictions
U.S. Trade Trends
pending the outcome of USTR negotiations with the EU and
Japan), uranium (no restrictions placed but formed working
The United States is the world’s largest economy, trading
group to review domestic nuclear fuel supply chain), and
nation, and foreign direct investment (FDI) source and
titanium sponges (investigation ongoing); and
destination (stock basis). U.S. trade has expanded (Figure
1) and its markets and production have become more
Section 201 (1974 Trade Act) to address potential injury
from surges in solar panels and washing machine imports
integrated especially with emerging economies. The 2018
(applied tariffs and quotas).
top U.S. trading partners were China, Canada, Mexico,
Japan, and the United Kingdom (UK), and, as a bloc, the
The Administration also has conducted antidumping and
European Union (EU-28). The United States has a long-
countervailing duty investigations to address unfairly traded
imports. U.S. trading partners have responded to these
https://crsreports.congress.gov
U.S. Trade Policy: Background and Current Issues
actions by negotiating exceptions to U.S. tariffs, offering
The Administration also notified Congress of its intent to
other concessions, imposing retaliatory tariffs, and
begin negotiations under TPA with Japan, the EU, and the
launching WTO complaints against the United States.
UK. U.S. motivations for the new talks include concerns
Trade Promotion Authority
over disadvantages to U.S. exporters from non-U.S. trade
agreements, including among the remaining 11 TPP
Congress and the President generally work together to
countries and between the EU and Japan. The scope of the
negotiate and implement U.S. trade agreements. Beginning
new negotiations is unclear, but the Administration appears
with the Reciprocal Trade Agreements Act of 1934,
to be using the threat of new tariffs to spur talks.
Congress delegated limited tariff authority to the President
USMCA is the largest, most significant, modern, and
to enter into reciprocal trade agreements to reduce tariffs
balanced trade agreement in history. . In the United States,
within pre-approved levels through proclamation authority.
the new trade pact wil support high-paying manufacturing
As nontariff trade barriers grew, Congress adopted “fast
jobs and promote greater access for American exports. –
track” authority in the Trade Act of 1974 to provide U.S.
President Trump, November 30, 2018.
trade negotiating objectives and expedited legislative
U.S.-China Trade Relations
consideration for implementing bills on future trade
agreements while preserving its constitutional prerogatives.
China, the largest U.S. trade partner and contributor to the
Called Trade Promotion Authority (TPA) since 2002, it was
U.S. trade deficit, arguably constitutes the most complex
U.S. trading relationship. China’s unprecedented economic
renewed in 2015 (P.L. 114-26) through July 1, 2021.
rise has created significant U.S. commercial opportunities,
The World Trade Organization
but the state’s continued role in economic activity raises
The current rules-based, multilateral trading system is
major concerns over unfair competition and challenges to
rooted in the WTO, established in 1995 to succeed the
existing global trade architecture. U.S. concerns include
General Agreement on Tariffs and Trade (GATT). Formed
China’s cyber and other theft of U.S. IP, technology
in 1947, the GATT was part of the post-WWII effort led by
transfer practices, industrial subsidies, and inadequate
the United States and Europe to build a stable, open, and
market access. The Administration imposed increased
prosperous global economy. WTO agreements cover trade
tariffs on $250 billion of Chinese imports to pressure China
in goods, services, and agriculture; remove tariff and
to alter its policies. China retaliated with tariffs on $110
nontariff barriers; and establish rules and disciplines on
billion of U.S. exports. Negotiations are ongoing.
IPR, dispute settlement (DS), and other trade-related issues.
Potential Issues for Congress
Core principles include nondiscrimination and
Tariff Actions. How do U.S. and retaliatory tariff increases
transparency. Issues such as consensus decision-making,
affect U.S. import-sensitive industries, other domestic
developing country exceptions, and noncompliance with
producers and exporters, consumers, and U.S. trade
notification requirements frustrate some members, leading
relations more broadly? Are such actions WTO compatible?
some to call for or propose reforms. Vexed by perceived
Is further escalation likely? What are implications of
overreach in the DS system, the Trump Administration has
continued the Obama Administration’s practice of refusing
linking tariffs to broader trade negotiations?
U.S.-China Trade Relations. Depending on its outcome,
to agree to the naming of Appellate Body (AB) jurists, a
gap that could halt the DS system in December 2019 when
the U.S.-China tariff standoff, in particular, has major
the AB will fall below a quorum to hear new cases.
potential implications for global supply chains and
economic growth. What are potential paths forward?
Trade Agreement Negotiations
Trade Agreements. How does Congress view potential
In light of constraints on the WTO, bilateral and regional
shifts in U.S. FTA policy stemming from USMCA? Do
trade agreements are more prominent today with 291
these shifts align with TPA? What are priorities for future
notified to the WTO. The United States has 14 free trade
U.S. trade negotiations, and does the current TPA reflect
agreements (FTAs) with 20 countries in force, covering
them? How do non-U.S. FTAs affect the U.S. economy?
market access and rules, usually exceeding WTO
Trade and Jobs. Trade liberalization generally supports
commitments. The 1994 NAFTA initiated a new generation
economic growth; it has both costs and benefits. Are U.S.
of FTAs and shaped multilateral negotiations. The 2012
Trade Adjustment Assistance programs adequately funded
U.S.-South Korea FTA (KORUS) has the most extensive
and effective to help those hurt from trade liberalization?
commitments among existing U.S. FTAs.
Trading System. U.S. leadership helped establish the
President Trump has expressed disappointment with U.S.
current rules-based global trading system and propel
FTAs, arguing they contribute to U.S. trade deficits. He has
consideration of rules on new issues, such as digital trade.
taken specific steps on U.S. FTA policy, including:
Does this system still benefit the United States?
withdrawing from the proposed Trans-Pacific Partnership
Trade and Security. Concerns exist about foreign efforts
(TPP) in January 2017;
to obtain U.S. technology. New 2018 laws, the Foreign
negotiating select modifications to KORUS; and
Investment Risk Review Modernization Act (FIRRMA) and
negotiating significant revisions to NAFTA.
the Export Controls Act (ECA), respectively, provide more
The renegotiated NAFTA, signed on November 30, 2018,
scrutiny of inward FDI and renew dual-use export controls.
and renamed the U.S.-Mexico-Canada Trade Agreement
(USMCA), would require implementing legislation to take
Are these tools sufficient? Is restricting FDI problematic?
effect. USMCA addresses new issues, such as digital trade
and state-owned enterprises, increases North American
Shayerah Ilias Akhtar, Specialist in International Trade
content requirements for vehicles, expands market access in
and Finance
agriculture, and reduces U.S. obligations in areas such as
Ian F. Fergusson, Specialist in International Trade and
investment and government procurement. Some Members
of Congress seek changes to the labor, environment,
Finance
enforcement, and pharmaceutical IPR provisions, while
others favor implementing the USMCA in its current form.
https://crsreports.congress.gov
U.S. Trade Policy: Background and Current Issues
IF10156
Brock R. Williams, Specialist in International Trade and
Finance
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