U.S. Trade Policy: Background and Current Issues

U.S. Trade Policy: Background and Current Issues

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Updated February 21, 2024
U.S. Trade Policy: Background and Current Issues
Congress has primary authority over U.S. trade policy
Figure 1. U.S. Goods and Services Trade
through its constitutional power to levy tariffs and regulate
foreign commerce. It has delegated some trade authorities
to the Executive, but retains an active role in formulating
trade policy and shaping outcomes. Since World War II,
U.S. trade policy has generally sought to advance U.S.
economic growth and competitiveness by: reducing
international trade and investment barriers; fostering an
open, transparent, and nondiscriminatory rules-based
trading system through the World Trade Organization
(WTO); enforcing partner countries’ trade commitments
and U.S. trade laws; and offering relief to U.S. workers and
firms adversely affected by “unfair” foreign trade practices

and trade liberalization. Legislative efforts in the 118th
Source: Bureau of Economic Analysis and Census Bureau.
Congress involve aims to boost U.S. innovation, production
Note: Not adjusted for inflation.
and supply chain resiliency in strategic sectors, and restrict
certain trade and investment with the People’s Republic of
The United States has a long-running overall trade deficit
China (PRC or China) and Russia (e.g., through sanctions).
(imports exceed exports); and the goods trade deficit
Congress also could continue to deliberate issues such as its
outweighs the services trade surplus. Most economists hold
role in U.S. trade negotiations, tariffs, and trade programs.
that macro-economic variables affect the deficit more than
trade policy (see Text Box).
Trade Economics and U.S. Trade Trends
Economic theory generally shows that free trade is
Key Components of U.S. Trade Policy
beneficial at the national level, though the benefits and
Congress sets U.S. trade negotiating objectives, enacts trade laws,
costs of trade liberalization may be unevenly distributed
programs, and agreements, and oversees trade functions
within a country. In theory, countries produce and export
conducted by federal agencies. By statute, the U.S. Trade
goods and services in which they have a higher relative
Representative (USTR) leads U.S. trade negotiations and
coordinates trade policy through an interagency process, with
comparative advantage, and import those domestically
formal public and private advisory input. Key trade functions are
unavailable or less efficiently produced. This assumes that
countries take a market-oriented approach, abide by similar
•
Trade rules-setting, liberalization, and enforcement.
rules, and offer reciprocal market access. Benefits of trade
Negotiation of trade agreements to open markets and set
rules on trade and investment; enforcement of commitments
can include higher wages and job growth, a wider variety of
via dispute settlement and U.S. trade laws.
products available at lower prices, increased productivity
•
Export promotion and controls. U.S. support for export
such as in export-focused industries, and more efficient
financing, market research, advocacy, and trade missions;
resource allocation from competition and economies of
licensing and control of strategic exports.
scale. Costs of trade liberalization can include some job and
•
Customs, trade remedies and adjustment. Border
firm losses, and wage declines, through import competition
regulations; laws to address adverse effects of imports,
and production relocation. These benefits and costs can
national security threats, balance of payments, tariff and non-
vary by industry. Trade liberalization’s economic impact is
tariff trade barriers, imports made with forced labor; Trade
difficult to measure and widely debated, in part due to the
Adjustment Assistance (TAA) for dislocated workers/firms.
many factors that influence economic activity. Most
•
Trade preferences. Duty-free access to U.S. market for
economists agree that trade liberalization benefits the U.S.
eligible developing countries and products, intended to
economy overall but imposes adjustment costs for certain
encourage trade and spur their economic growth.
sectors and regions. Workers and firms may need more
•
Investment. Protection and promotion through investment
assistance and dedicated policies to adjust to trade effects.
treaties and trade agreements; examination of foreign
investment for national security implications.
Over the past several decades, U.S. trade generally has
expanded (see Figure 1), and the U.S. economy has
Selected Issues and Developments
become more integrated globally. Supply chain disruptions
In its trade policy, the Biden Administration has sought to
from the COVID-19 pandemic, trade frictions with China,
strengthen the U.S. economy by aiming to boost U.S.
and the Russia-Ukraine war revealed some vulnerabilities
manufacturing, innovation and competitiveness, and
posed by this interdependence. After rebounding from the
advance labor and environmental goals. It also has sought
economic fallout of the pandemic, U.S. total trade (goods
to enforce trade agreements, work with allies and partners
and services, exports plus imports) declined in 2023 by
to address trade frictions, and counter and constrain actions
1.5%. This mirrored trends in global trade, which is
of concern by China and Russia, among other aims. Some
estimated to have contracted in 2023, amid geopolitical
Members and stakeholders support renewed focus on key
tensions, continued supply disruptions, high inflation, and
issues like supply chain resiliency and worker rights; others
rising debt. The top U.S. partners (total trade) in 2022 were,
criticize the lack of focus on market access negotiations.
as a bloc, the European Union (EU, $1,322 billion), and by
country, Canada ($919 bn), Mexico ($864 bn), China ($761
U.S. Trade Laws. Authorities to adjust tariffs and other
bn), Japan ($310 bn), and Germany ($304 bn).
restrictions address: unfairly traded goods (e.g., anti-
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U.S. Trade Policy: Background and Current Issues
dumping and countervailing duty laws); import injury from
focusing on trade enforcement (e.g., USMCA worker rights
fairly traded goods, and foreign trade barriers or trade
commitments), the Administration has several ongoing
commitment violations (§201 and §301 of the Trade Act of
trade initiatives with targeted agendas that exclude tariffs
1974, respectively); and trade-related national security
and market access provisions. The U.S. and 13 partners in
concerns (§232 of the Trade Expansion Act of 1962). The
the regional Indo-Pacific Economic Framework for
Trump Administration renewed use of some of these
Prosperity (IPEF) reached agreements by November 2023
authorities, applying tariffs on steel and aluminum imports
on supply chains; clean energy and infrastructure; and
from most trading partners, including China (§232), and on
tax/anti-corruption. IPEF partners continue negotiations on
most imports from China in response to its practices of
select trade issues. In June 2023, the Administration signed
concern (§301). U.S. trading partners imposed counter-
its first agreement in a separate, similar initiative with
tariffs and launched WTO dispute cases. President Biden
Taiwan. In March 2023, the Administration signed a critical
has kept many restrictions, but lifted some or reached less
minerals agreement (CMA) with Japan related to electric
restrictive arrangements (e.g., with the EU, Japan, and UK).
vehicle battery production, and is negotiating CMAs with
Trade Promotion Authority (TPA).
the EU and UK. The U.S.-EU Trade and Technology
Since the
Council aims to cooperate on supply chains, standards,
Reciprocal Trade Agreements Act of 1934, Congress has
emerging technologies, digital connectivity, export controls,
periodically delegated to the President limited authority to
and nonmarket economy concerns. Other efforts include the
reduce U.S. tariffs through proclamation in reciprocal trade
Americas Partnership for Economic Prosperity (APEP) and
agreements. As non-tariff trade barriers grew and became
engagement with India on trade frictions and technology.
the focus of negotiations, Congress adopted “fast track”
Some in Congress have called for the Administration to
authority, now called TPA, in the Trade Act of 1974 to
pursue new FTAs (e.g., with the UK), negotiate tariff
establish U.S. trade negotiating objectives and expedited
reductions, and be more transparent in its trade talks.
legislative procedures to consider implementing bills on
trade agreements, while preserving its constitutional
U.S.-China Trade. China is an important market for the
prerogatives. The most recent TPA, which Congress
United States but poses major challenges. PRC statist
renewed in 2015 (P.L. 114-26), expired in 2021. The Biden
economic policies and the market-distorting behaviors they
Administration has not requested TPA, and has pursued
incentivize are of concern for many in Congress. In 2018,
trade initiatives as executive agreements that lack a formal
USTR, under Section 301 authority, determined that China
role for Congress in approving outcomes. Congressional
engages in forced technology transfer, cyber-enabled theft
consideration of potential TPA renewal or other authorities
of U.S. IP and trade secrets, discriminatory and nonmarket
could involve debate over Congress’ role, U.S. trade
licensing practices, and state-funded strategic acquisitions
priorities and negotiating objectives, and effects of trade on
of U.S. assets. USTR imposed tariffs on about $370 billion
the U.S. economy, firms and workers, and TAA’s role.
of U.S. imports from China. China countered with tariffs on
World Trade Organization (WTO).
$110 billion of U.S. products. Most tariffs remain in effect.
The rules-based,
In May 2022 USTR began the statutory four-year review of
multilateral trading system is rooted in the WTO, formed in
its Section 301 action and has said the review will conclude
1995, and its institutional predecessor, the 1947 General
in spring 2024. In response to China and other concerns,
Agreement on Tariffs and Trade (GATT). The GATT was a
Congress has sought to boost U.S. innovation, production,
key element of the U.S.- and Europe-led post-WWII effort
and supply chain resiliency in strategic sectors; strengthen
to build a stable, open, and prosperous global economy.
national security review of foreign investment and export
WTO core principles include nondiscrimination and
controls; and restrict U.S. trade and investments tied to
transparency. WTO agreements cover goods, services, and
PRC policies of concern.
agriculture trade; remove tariff and nontariff barriers; and
establish rules and disciplines (e.g., on intellectual property
Potential Activity in the 118th Congress
rights, IPR) and dispute settlement (DS). Stalled trade
Congress may continue to deliberate on issues including
liberalization efforts and issues such as developing country
•
exceptions, concerns about noncompliance and enforcement
Congress’ role in trade policy vis-à-vis the executive,
of WTO rules, and ability to address challenges posed by
including on tariffs and trade agreements;
PRC statist practices have led WTO members to call for
• U.S. trade policy’s historic focus on liberalizing
reforms, including of the DS system. Members achieved
markets, renewed emphasis on industrial policy, and
some key outcomes at their 2022 ministerial, such as a
effects on the U.S. economy;
multilateral deal on fisheries subsidies and a trade and IPR
• U.S. leadership in global trade, including in the WTO,
response to the pandemic, which some view as boosting the
and in cooperation with others;
WTO’s credibility. Many outstanding issues remain.
• U.S. trade relations with major economies, and options
to address concerns such as statist and unfair practices;
Trade Agreements and Other Initiatives. As WTO
• trade issues with regard to technology and innovation,
negotiations have stalled or progressed slowly, bilateral and
labor, energy, the environment, supply chain resiliency
regional trade agreements have proliferated, with over 360
and diversification, and economic development;
in force globally. The United States has 14 comprehensive
• enforcement of FTAs; prospects for new agreements;
free trade agreements (FTAs) with 20 countries. The Trump
alignment of executive trade initiatives with
Administration made limited changes to the U.S.-South
congressional aims; and
Korea FTA, enacted a partial-scope agreement with Japan
• the effectiveness of the current U.S. trade and
covering some tariffs and digital trade, and negotiated the
investment policy toolkit in protecting the U.S. economy
U.S.-Mexico-Canada Agreement (USMCA). Replacing the
from unfair practices and preserving national security.
1994 North American Free Trade Agreement (NAFTA),
USMCA has new provisions on digital trade, state-owned
Shayerah I. Akhtar, Specialist in International Trade and
enterprises, rules of origin for autos, and other key changes.
Finance
The Biden Administration has focused on “a worker-
Cathleen D. Cimino-Isaacs, Specialist in International
centered trade policy that fosters inclusive prosperity,” and
Trade and Finance
has not pursued new comprehensive FTAs. In addition to
Karen M. Sutter, Specialist in Asian Trade and Finance
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U.S. Trade Policy: Background and Current Issues

IF10156

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