U.S. Trade Debates: The Case For and Against Trade Restrictions

U.S. Trade Debates: The Case For and Against Trade Restrictions

February 19, 2019
U.S. Trade Debates: The Case For and Against Trade Restrictions
Background
policies based on priorities that differ from—and often
The 116th Congress is positioned for continuing oversight of
undermine—those of the United States. Additionally, while
the Trump Administration’s evolving trade policy.
the impact of trade liberalization is multifaceted and in
Congress’ role in trade policy stems from a number of
some cases disruptive, the growth of global value chains—
overlapping responsibilities, beginning with Article I of the
combined with changes related to technology, labor
U.S. Constitution, which grants Congress the “power to lay
productivity, consumer preferences, and broader economic
and collect taxes, duties, imposts, and excises” and “to
factors—have also transformed some U.S. industries.
“regulate commerce with foreign nations.” In some areas,
Debates over Trade Restrictions
particularly in tariffs and trade negotiations, Congress has
Arguments for increased tariffs and other restrictions on
delegated certain authorities to the President. Over the past
trade come in several forms, but most are not compelling on
year, the Trump Administration has made greater use of
economic grounds alone. Economists argue that
these authorities to impose tariffs on some U.S. imports and
protectionism imposes costs on the economy as a whole
advocate for what it considers to be “free,” “fair,” and
that exceed any potential benefits. These costs arise from
“reciprocal” trade. These developments have intensified
implementation and enforcement, higher prices, inefficient
congressional interest in trade policy and analysis of the
resource allocation, and foreign retaliation. Three common
impact of trade restrictions, including U.S. tariffs and their
arguments for trade restrictions are evaluated below.
effects.
Effects of Trade Liberalization
Figure 1. U.S. Employment Trends
Since World War II (WWII), the United States has been a
driving force in removing trade barriers across the globe
and constructing an open and rules-based global trading
system through a wide range of international institutions
and agreements. The effects of these efforts on the U.S.
economy and the mechanisms by which trade has affected
U.S. growth are difficult to quantify. This is partly due to
the challenges associated with disentangling the effects of
trade liberalization from those of other domestic and global
economic developments. Nevertheless, most economists
contend that in the aggregate the economic benefits of
reducing restrictions to trade outweigh the costs.
Reducing trade restrictions tends to lower prices and
increase the variety of goods and services and provides U.S.
firms with export opportunities. Studies show that U.S.
firms engaged in trade often achieve greater productivity

and pay higher wages and benefits to their workers. While
Source: CRS with data from the U.S. Bureau of Labor Statistics.
the net payoff is substantial, the reality is that trade
“Trade Destroys Jobs”
liberalization and globalization have presented both
Some argue that trade restrictions are needed to save jobs.
opportunities and challenges for the United States.
The economic reality is that jobs are constantly being
Because the gains from trade tend to be more widely
created and replaced as some economic activities expand
dispersed than the losses, they are often not readily apparent
and others contract, and trade—like other market forces—
or well understood. Some groups argue that globalization
contributes to this process. While some workers may
has not been inclusive, benefiting some more than others.
benefit from trade (e.g., those who get higher-paying jobs
They point to job losses, stagnant wages, and rising
when exporters expand their production), others bear the
inequality among some groups as indicators of the negative
costs (e.g., those who are displaced because of import
aspects of trade liberalization, although the causes of these
competition).
trends are highly contested.
During the current U.S. economic expansion, for instance,
The Trump Administration and some Members also
employment has grown by almost 20 million jobs and the
contend that while past trade negotiations and agreements
unemployment rate has fallen from 10.0% to 4.0%, while at
have lowered or eliminated U.S. trade restrictions, they
the same time U.S. merchandise imports have increased
have failed to address effectively foreign protectionist
nearly 50% in nominal terms (Figure 1). In addition, the
practices and enhance reciprocal market access for U.S.
expansion of production increasingly requires advanced
firms and workers. In their view, some countries “play by
technology but relatively less labor. As a result, for many
different rules” and conduct their economic and trade
products, labor-intensive activities like assembly have
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U.S. Trade Debates: The Case For and Against Trade Restrictions
moved abroad, while high-value added activities such as
other measures designed by governments to support their
design, product development, and distribution have
domestic industries at the expense of foreign firms and
remained in the United States.
workers.
Economic theory suggests that while the degree to which an
Although their effects cannot be easily quantified,
economy is open to trade affects the mix of jobs within it,
economists generally agree that practices like these may
trade openness has little impact on the overall or total level
distort U.S. and global markets. At the same time, many of
of employment. Specifically, trade affects the mix of jobs
them also agree that raising trade barriers to counter these
because workers and capital shift away from sectors in
practices (or attempt to induce their removal)—while often
which they are less productive relative to foreign producers
allowed under U.S. laws and WTO rules—may ultimately
and toward other existing and new ones. (This leads to
lead other countries to adopt restrictive trade policies of
higher productivity and thus higher wages for workers able
their own, increasing protectionism that could undermine
to shift into employment in expanding sectors.)
economic growth and the rules-based global trading system.
In a large, dynamic economy like that of the United
In the past, U.S. leadership in this system has enabled the
States, the main influences on total employment are
United States to shape the global trade agenda in ways that
sometimes more a function of such factors as workforce
both advance and defend U.S. interests. Many analysts
availability, labor market regulations, taxes, interest rates,
contend that continuing to pursue such an approach at the
education, skills, age, and long-term technological chances,
multilateral level might be more effective in addressing or
rather than something intrinsic to the increase of imports
remedying the adverse effects of “unfair” trade practices
due to trade liberalization and greater competition.
than unilaterally imposing tariffs or other trade barriers.
“Trade Creates Inequality”
“The Trump Administration strongly believes that al countries
Some analysts and policymakers argue that globalization
would benefit from adopting policies that promote true market
and trade liberalization—especially after China’s entry into
competition. Unfortunately, history shows that not al countries wil
the global economy—have contributed to declines in the
do so voluntarily. Accordingly, we also have an aggressive trade
real wages of U.S. workers and growing disparity in wealth
enforcement agenda designed to prevent countries from benefiting
in the United States. Despite intense focus on this issue in
from unfair trading practices.”
the academic literature, there is no clear consensus on the
The President’s 2018 Trade Policy Agenda, March 2018.
net effects of trade on wage and wealth inequality.
Issues for Congress
While trade may have a short-run impact on income
inequality in some cases and in some sectors of the
Most economists assert that the U.S. costs and benefits
economy, over the long term, many researchers have found
linked to an increasingly interconnected global economy
that a wide range of factors within the economy determines
run in many directions. They argue that retreating from
the distribution of income, with trade generally judged to be
global trade and increasing trade restrictions may not
less significant. While the overall effects may be relatively
address the underlying causes of the adverse effects of trade
small, a growing body of literature also highlights
on some groups, and may jeopardize economic growth.
challenges in workers’ ability or willingness to move to
Research has shown that increased protectionism is
ineffective as a means to address these effects.
new sectors when their jobs are lost or wages are dampened
due to import competition.
Protectionism imposes costs that often outweigh the
In addition, the slowdown in real wage growth and
benefits and has unintended negative effects, not only on
increased wage inequality may be the result of slow U.S.
U.S. consumers that purchase imported goods, but also on
productivity growth and the bias in technological change
U.S. industries that use those goods as inputs to their own
toward greater use of higher skilled workers throughout the
production and that employ workers. In some instances,
economy—tending to pull up their wages relative to those
protectionism can lead companies to shift production out of
of the less skilled. Other factors that may have contributed
the United States—either because of higher input costs or to
avoid retaliatory barriers imposed by U.S. trading partners.
to wage decreases are de-unionization and a falling real
minimum wage. Most economists, therefore, agree that
Since WWII, an overarching goal of the United States has
policies aimed at supporting individuals affected by
been to preserve its high standard of living by remaining
increasing trade openness—particularly efforts related to
innovative, productive, and competitive, while safeguarding
education and retraining—are vital to ensuring that the
those who may be left behind in a fast-changing global
gains are broadly shared and growth is inclusive.
economy. Congress may consider policy responses that
“Unfair Practices Undermine the Benefits of Trade”
support this goal and reduce or soften the hardships and
costs from trade. These responses or tools, which
Some Members and analysts contend that trade restrictions
economists generally find to be more effective than
can be used to address the challenges associated with
“unfair” foreign trade practices. A longstanding objective of
protectionism, include areas such as education, social safety
nets, adjustment assistance for workers and firms, and tax,
U.S. trade policy has been to reduce and eliminate these
practices to achieve a “level playing field” for U.S.
regulatory, and innovation policies. They affect the overall
U.S. economic climate and, as components of public policy,
workers, firms, and industries. Practices deemed “unfair”
are subject to congressional action.
include government subsidies and other injurious import
practices that may violate World Trade Organization rules,
Andres B. Schwarzenberg, Analyst in International Trade
weak protection of intellectual property rights, cyber theft,
and Finance
ineffective labor and environmental laws or enforcement,
anti-competitive behavior by state-owned enterprises, and
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U.S. Trade Debates: The Case For and Against Trade Restrictions

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