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Updated September 15, 2020
U.S. Trade Policy: Background and Current Issues
Congress plays a major role in U.S. trade policy through its
overall trade deficit (imports exceed exports); the trade
constitutional authority over tariffs and foreign commerce
deficit for goods outweighs the services trade surplus. Most
(Article 1, §8). Since World War II, U.S. trade policy has
economists argue macroeconomic variables (e.g., aggregate
generally sought to promote U.S. economic growth and
savings and investment; valuation of the dollar and its role
competitiveness by: (1) reducing global trade and
in global markets) play a larger role in determining the U.S.
investment barriers; (2) fostering an open, transparent, and
trade deficit than trade policies or agreements.
nondiscriminatory rules-based trading system, including
through the World Trade Organization (WTO); (3)
Figure 1. U.S. Goods and Services Trade
enforcing partner countries’ trade commitments and U.S.
trade laws; and (4) offering relief to U.S. firms and workers
adversely affected by “unfair” foreign trade practices and
trade liberalization.
Congress has deliberated and legislated in response to
aspects of the Trump Administration’s trade policy,
including the President’s use of unilateral tariffs, the
priorities and scope of U.S. trade agreement negotiations,
and the U.S. approach to China and other trading partners.
Economics of Trade

Economic theory holds that international trade can be
Source: Bureau of Economic Analysis and Census Bureau.
beneficial at the national level, but benefits and costs can be
unevenly distributed or concentrated. Countries increase
Components of U.S. Trade Policy
production and export goods and services in which they
Congress sets U.S. trade negotiating objectives, enacts trade
have a higher relative comparative advantage through skills
laws, programs, and agreements, and oversees executive
or resources, and import those unavailable domestically or
trade functions conducted by a range of federal agencies.
less efficiently produced. Benefits of trade can include
By statute, the U.S. Trade Representative (USTR) is the
more efficient resource allocation and greater productivity
lead U.S. trade negotiator and coordinates trade policy
through competition, economies of scale, higher wages and
through an interagency process, with formal public and
job growth in exporting industries, as well as greater choice
private advisory input. Key policy components include:
and lower prices for consumers and firms using imports as
Trade rules-setting, liberalization, and enforcement.
inputs into final products. Costs can include job, wage, and
Negotiation of trade agreements to open markets and set
firm losses through competition from imports and
rules on trade and investment; enforcement of
relocation of production.
commitments via dispute settlement and U.S. trade laws.
The economic impact of trade liberalization is difficult to
Export promotion and controls. U.S. support for
measure and widely debated, in part because other factors
export financing, market research, advocacy, and trade
influence economic activity, potentially with greater effect,
missions; licensing and control of strategic exports.
and because expanded trade may lead to shifts in the
Customs, trade remedies, trade adjustment.
composition of economic activity with growth in some
Regulation of borders; laws to address adverse effects of
sectors and declines in others. Some economists assess that
imports on U.S. industries, national security threats,
U.S. manufacturing employment has been more affected by
balance of payments, and “unfair” barriers to U.S.
productivity gains through technological advancements and
exports; assistance for dislocated workers and firms.
automation than by expanded trade. Since 1990, U.S.
Trade preferences. Duty-free access to U.S. markets
production in the manufacturing sector increased by
for eligible developing countries and products, intended
roughly 60%, while employment fell by one-third. Most
to encourage trade and spur their economic growth.
economists argue that expanded trade has been a net benefit

to the U.S. economy (through the channels described
Investment. Protection and promotion (through
above), but has contributed to job losses in some sectors
investment treaties and trade agreements); examination
and regions, including through offshoring, and that workers
of inbound FDI for national security implications.
may require costly retraining or relocation to adjust to the
U.S. Trade Laws and Policy Tools
resulting shifts in employment opportunities.
The Administration highlights the U.S. trade deficit as an
U.S. Trade Trends
indicator of foreign “unfair” trade practices with potential
The United States is the world’s largest economy, trader,
implications for U.S. industry and jobs, and has assertively
and source and destination of foreign direct investment
enforced U.S. trade laws. In particular, the Administration
(FDI, stock basis). U.S. trade has expanded (Figure 1) and
has applied unilateral tariff increases through use of
U.S. markets and production have become more integrated,
authorities delegated by Congress in the Trade Expansion
especially with emerging economies. The 2019 top U.S.
Act of 1962 (Section 232 tariffs on steel and aluminum) and
trading partners were Canada, Mexico, China, Japan, and
the Trade Act of 1974 (Section 201 tariffs on washing
the United Kingdom (UK), and, as a bloc, the European
machines and solar panels, and Section 301 tariffs on
Union (EU-28). The United States has a long-running
Chinese imports). Congress created these authorities to
https://crsreports.congress.gov

U.S. Trade Policy: Background and Current Issues
address injurious import threats to U.S. industry (Sec. 201)
over the future scope of U.S. trade agreements and
and national security (Sec. 232), as well as foreign trade
presidential trade agreement authorities.
barriers or trade commitment violations (Sec. 301). While
these tools were used regularly in the 1980s, their use
The Administration also negotiated the U.S.-Mexico-
declined following the 1995 creation of the WTO and its
Canada Agreement (USMCA), which entered into force on
enforceable dispute settlement system and removal of
July 1, 2020, replacing NAFTA. USMCA addresses new
certain trade barriers. Some in Congress question the
issues, such as digital trade and state-owned enterprises,
validity of some of the Administration’s tariff actions. U.S.
increases North American content requirements for
trading partners have responded by imposing retaliatory
vehicles, expands market access in agriculture, and reduces
tariffs, negotiating exceptions in the form of quotas or other
U.S. obligations in areas such as investment and
agreements, and launching WTO complaints. In September,
government procurement. In order to gain congressional
a WTO dispute panel ruled that U.S. Sec. 301 tariffs on
support for the implementing legislation required to bring
imports from China violated WTO rules.
the USMCA into effect, the Administration made changes
to the labor, environment, enforcement, and pharmaceutical
Trade Promotion Authority
IPR provisions, as originally negotiated. Some in Congress
Congress and the President generally work together to
questioned whether congressional consideration of the
negotiate and implement U.S. trade agreements. Beginning
modified agreement adhered to TPA procedures. The
with the Reciprocal Trade Agreements Act of 1934,
Administration has also initiated FTA talks with the EU, the
Congress delegated limited tariff authority to the President
United Kingdom, and Kenya, and has stated its intent for
to enter into reciprocal trade agreements to reduce tariffs
more comprehensive, second-stage negotiations with Japan.
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.
China, arguably, is the most challenging U.S. trading
trade negotiating objectives and expedited legislative
relationship. Despite significant U.S. commercial
consideration for implementing bills on future trade
opportunities, the state’s continued role in economic
agreements while preserving its constitutional prerogatives.
activity raises major concerns over unfair competition and
Called Trade Promotion Authority (TPA) since 2002, it was
challenges to the WTO system. Other U.S. concerns include
renewed in 2015 (P.L. 114-26), and will expire on July 1,
China’s cyber and other theft of U.S. IP, technology
2021. Debate over the renewal of TPA and potential
transfer practices, industrial subsidies, and inadequate
reforms, including to U.S. trade negotiating objectives, may
market access. To address these concerns the Trump
be a focus of the 117th Congress.
Administration invoked Section 301, imposed four rounds
of tariffs (to which China responded with counter tariffs),
The World Trade Organization (WTO)
and negotiated a Phase I agreement that addressed some
The current rules-based, multilateral trading system is
concerns and new market access in agriculture and financial
rooted in the WTO, established in 1995 to succeed the
services, but left many concerns to future talks. The Trump
General Agreement on Tariffs and Trade (GATT). Formed
Administration also has used national security screening of
in 1947, the GATT was part of the post-WWII effort led by
investment to prevent acquisitions of U.S. companies, and
the United States and Europe to build a stable, open, and
tightened the export control system to restrict strategic
prosperous global economy. WTO core principles include
technology to specific entities of concern (e.g., Huawei).
nondiscrimination and transparency, and agreements cover
trade in goods, services, and agriculture; remove tariff and
Potential Issues for Congress
nontariff barriers; and establish rules and disciplines on
Tariff Actions. How do U.S. and retaliatory tariffs affect
issues such as intellectual property rights (IPR) and dispute
U.S. producers, consumers, and trade relations? Are
settlement (DS). Stalled trade liberalization efforts and
legislative reforms to existing tariff authorities needed?
issues such as consensus decisionmaking, developing
U.S.-China Trade. What is the status of implementing the
country exceptions, and noncompliance with notification
Phase I agreement? What are the best tools to address
requirements frustrate some members, leading some to call
Chinese industrial policies and trade practices of concern?
for or propose reforms. Vexed by perceived overreach in
the DS system, the Administration has refused to agree to
Trade Agreements. Does USMCA represent the template
the naming of new Appellate Body (AB) jurists, which in
for future U.S. agreements? What role should partial scope
December 2019, caused the AB to fall below a quorum to
agreements play in U.S. FTA policy? What are prospects
hear new cases. This has effectively paralyzed the DS
and priorities for new FTA partners such as Taiwan?
system with new rulings on hold pending appeals.
Trade and Jobs. Are U.S. Trade Adjustment Assistance
Trade Agreement Negotiations
programs adequately funded and effective to help those hurt
from trade liberalization?
While WTO agreements have stalled, bilateral and regional
trade agreements have proliferated with over 300 in force
Trading System/WTO. Does the United States still benefit
globally. The United States has 14 free trade agreements
from the rules-based global trading system it helped
(FTAs) with 20 countries in force, covering market access
establish? Can U.S. calls for needed reforms be resolved?
and rules, usually exceeding WTO commitments.
Trade and Security. Concerns exist about foreign efforts
to obtain U.S. technology. New 2018 laws, the Foreign
U.S. trade agreements have been a focus of President
Investment Risk Review Modernization Act (FIRRMA) and
Trump, who argues that past U.S. FTAs disadvantaged the
the Export Controls Act (ECA), respectively, provide more
United States. After withdrawing from the Trans-Pacific
scrutiny of inward FDI and renew dual-use export controls.
Partnership (TPP)—negotiated with 11 trading partners
Are these tools sufficient? Is restricting FDI problematic?
under President Obama—the Trump Administration made
minor modifications to the existing U.S.-South Korea FTA
Shayerah Ilias Akhtar, Specialist in International Trade
and enacted a new mini-deal with Japan covering about 5%
of bilateral trade. These actions, undertaken without
and Finance
legislative approval, have led to debate within Congress
Ian F. Fergusson, Specialist in International Trade and
Finance
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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https://crsreports.congress.gov | IF10156 · VERSION 18 · UPDATED