April 20, 2015
U.S. Trade Policy: Background and Current Issues
U.S. Trade Policy in Context
U.S. Trade Trends
Congress plays a major role in U.S. trade policy through its
legislative and oversight authority. Since World War II,
U.S. trade policy has focused on liberalizing markets by
reducing trade and investment barriers, creating a rulesbased trading system, enforcing commitments under trade
agreements, and supporting economic growth. Trade policy,
spanning a range of stakeholder interests, involves U.S.
economic, foreign policy, and national security issues.
The United States is the world’s largest economy for total
trade in goods and services, as well as a major source of
and destination for foreign direct investment (FDI). U.S.
trade has expanded and evolved over the past two decades
with greater integration of markets and production, as well
as the rise of supply chain networks (see Figure 1). U.S.
trade composition and patterns also have changed, with
emerging and developing economies playing a greater role.
The top five U.S. merchandise trading partners are Canada,
China, Mexico, Japan, and Germany. The EU represents the
largest U.S. trading partner. The United States has a longrunning overall trade deficit, meaning the value of its
imports of goods and services exceed its exports of such.
Specifically, its goods trade deficit outweighs its service
trade surplus. The imbalance’s impact on the U.S. economy
is debated. Trade is viewed as supporting U.S. recovery
after the 2008-2009 global economic downturn.
Economic theory maintains that trade is mutually
beneficial, but its benefits may not be distributed evenly
and costs may be concentrated. Countries specialize by
increasing production and exporting goods and services in
which they have a higher comparative advantage through
skills or resources (e.g., U.S. exports using high-skilled
labor), and importing those domestically unavailable or less
efficiently produced (e.g., U.S. imports using lower-skilled
labor). Trade benefits can include more efficient resource
allocation, increased competition, economies of scale, and
lower prices and more choice for consumers. Costs can
include reallocation of resources or job losses in import
sensitive industries. The economic impact of trade
liberalization is difficult to measure and widely debated.
Components of U.S. Trade Policy
Figure 1. U.S. Goods and Services Trade
Economics of Trade
The U.S. Trade Representative (USTR), which is
responsible for developing and coordinating U.S. trade
policy, is the lead U.S. trade negotiator. Other federal
government agencies also are involved in U.S. trade policy,
with interagency processes and advisory systems providing
support. Key components of U.S. trade policy include
• Trade liberalization—Negotiation of reciprocal trade
and investment agreements to open markets and
establish rules governing trade and investment;
enforcement of trade agreement commitments.
• Export promotion and controls—U.S. export
promotion (e.g., export financing, market research,
advocacy, trade missions); licensing and control of
certain strategic exports.
• Trade remedies and adjustment—U.S. statutes on
certain trade practices (e.g., antidumping and
countervailing duties); trade adjustment assistance
(TAA) for dislocated workers and firms.
• Trade preferences—Unilateral preference programs
that provide duty-free access to U.S. markets for eligible
developing countries and products.
• Investment—Investment protection and promotion;
examination of foreign investment with national security
Source: Bureau of Economic and Analysis and Census Bureau.
U.S. Trade Agreements and
Congress is active in shaping and examining U.S. trade
policy. Several U.S. trade negotiations are ongoing.
Role of Congress
Under the U.S. Constitution, Congress has the authority to
regulate foreign commerce, while the President has the
authority to conduct foreign relations. For the first 150
years of U.S. history, Congress set tariff rates on all
imported products. This policy shifted with the Reciprocal
Trade Agreements Act of 1934, in which Congress
delegated authority to the President to enter into reciprocal
trade agreements that reduced tariffs within pre-approved
levels and to implement them through delegated
proclamation authority. With the growing prominence of
nontariff trade barriers, Congress adopted “fast track”
authority in the Trade Act of 1974 to provide expedited
legislative consideration for implementing bills on future
trade agreements while preserving congressional
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U.S. Trade Policy: Background and Current Issues
prerogatives on trade policy. Now called Trade Promotion
Authority (TPA), it has been reauthorized four times. The
latest TPA, provided in 2002, expired in 2007. Bicameral
legislation, the Bipartisan Congressional Trade Priorities
and Accountability Act of 2015, has been introduced in the
114th Congress to reauthorize TPA (H.R. 1890/S. 995).
Trade Promotion Authority: A “Political Compact”
Negotiating Objectives: Congress sets trade policy objectives
for President to negotiate in trade agreements.
Notification, Consultation, and Reporting Requirements:
President engages in and keeps Congress abreast of negotiations.
Expedited Procedures: Congress considers implementing
legislation on an expedited basis, e.g., guaranteed consideration,
up-or-down vote, no amendments, limited time period.
The current rules-based, multilateral trading system is
rooted in the World Trade Organization (WTO), established
in 1995 as the successor to the General Agreement on
Tariffs and Trade (GATT). Formed in 1947, the GATT was
part of the post-WWII effort to build a stable, open, more
prosperous international economy. WTO agreements cover
goods, services, and agricultural trade; remove tariff and
nontariff barriers; and establish rules and disciplines on
intellectual property rights (IPR) and other trade-related
issues. They are based on principles of nondiscrimination,
national treatment, most-favored nation, and transparency.
The WTO Doha Round of negotiations, launched in 2001,
has been impeded by differences among developed and
developing countries on key trade issues in agriculture,
goods, and services. Some outstanding issues were resolved
in the December 2013 Bali Ministerial, during which a
WTO Trade Facilitation Agreement was concluded.
With the Doha Round impasse, bilateral and regional FTA
negotiations have become more prominent. According to
the WTO, about 400 reciprocal trade agreements are in
force worldwide. The United States has sought
comprehensive and “high standard” FTAs covering market
access and rules, often going beyond WTO standards or
commitments. The United States has 14 FTAs with 20
countries. The most economically significant U.S. FTA
remains the 1994 North American Free Trade Agreement
(NAFTA) with Canada and Mexico. Since NAFTA, the
evolving trade landscape has brought new issues into focus.
The U.S.-South Korea FTA, which entered into force in
2012, is characterized as the highest standard U.S. FTA.
The United States does not have FTAs with major emerging
economies such as China, Brazil, and India, but is
negotiating bilateral investment treaties with some of them.
The United States is negotiating two “mega-regional”
FTAs: the Trans-Pacific Partnership (TPP) with 11
countries in the Asia-Pacific and the Transatlantic Trade
and Investment Partnership (T-TIP) with the EU.
Combined, the proposed FTAs would cover most of world
trade and investment. They would offer opportunities to
develop new and expanded rules in areas such as regulatory
compatibility, state-owned enterprises (SOEs), and digital
trade. Both serve strategic interests, with TPP the economic
component of the Administration’s “rebalance to Asia” and
T-TIP a way to reaffirm the transatlantic alliance. The
United States also is negotiating plurilaterally on services,
information technology tariffs, and environmental goods,
and multilaterally on unresolved Doha Round issues.
Framing the Current Debate
Congressional debate on trade policy comprises many
policy issues that elicit a range of stakeholder views.
Market Access. Enhanced market access involves reducing
and eliminating tariff and nontariff barriers. Average U.S.
tariff rates are around 3%, but higher in certain sensitive
sectors. Developing countries’ average tariff rates are
higher. All economies have offensive and defensive
interests, with sector-specific issues in goods, services,
agriculture, and government procurement.
Intellectual Property Rights. IPR, a source of U.S.
competitiveness, are legal, private, enforceable rights to
inventors and artists to exclude others from using or
marketing their creations without permission for a certain
period of time. Current trade issues involve the level of
protection and enforcement of patents, copyrights,
trademarks, and trade secrets.
Worker Rights and the Environment. The treatment of
worker rights and environmental issues in trade agreements
has evolved to include international norms and stronger
enforcement mechanisms. Developed and developing
country interests vary in addressing these issues.
Investment. Investor protections and enforcement of rights
are a focus in the current debate. Among the key issues is
treatment of investor-state dispute settlement (ISDS), which
allows investors to submit an investment dispute with a host
country to binding, impartial, international arbitration.
New Trade Issues and Barriers. The increased role of
emerging economies, digital trade, and supply chains raise
new challenges either modestly addressed, or not at all, in
existing trade agreements. Current negotiations offer an
opportunity to develop new trade “rules for the road,” such
as on SOEs; cross-border data flows; localization barriers;
trade secret theft, including through cybercrime; and
“currency manipulation.” Congressional views differ on
how to address these issues.
Questions in U.S. trade policy include: What are issues in
potential TPA renewal? What are prospects for concluding
TPP and T-TIP as comprehensive and high standard FTAs?
Do current approaches adequately address new trade issues
and barriers? What should be U.S. trade priorities, such as
on negotiating new and enforcing existing agreements?
Shayerah Ilias Akhtar, email@example.com, 7-9253
Ian F. Fergusson, firstname.lastname@example.org, 7-4997
Brock R. Williams, email@example.com, 7-1157
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