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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
comparative advantage, and import those domestically coordinates trade policy through an interagency process, with
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
can include higher wages and job growth, a wider variety of rules on trade and investment; enforcement of commitments
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
become more integrated globally. Supply chain disruptions
Selected Issues and Developments
from the COVID-19 pandemic, trade frictions with China, In its trade policy, the Biden Administration has sought to
and the Russia-Ukraine war revealed some vulnerabilities strengthen the U.S. economy by aiming to boost U.S.
posed by this interdependence. After rebounding from the manufacturing, innovation and competitiveness, and
economic fallout of the pandemic, U.S. total trade (goods advance labor and environmental goals. It also has sought
and services, exports plus imports) declined in 2023 by to enforce trade agreements, work with allies and partners
1.5%. This mirrored trends in global trade, which is to address trade frictions, and counter and constrain actions
estimated to have contracted in 2023, amid geopolitical of concern by China and Russia, among other aims. Some
tensions, continued supply disruptions, high inflation, and Members and stakeholders support renewed focus on key
rising debt. The top U.S. partners (total trade) in 2022 were, issues like supply chain resiliency and worker rights; others
as a bloc, the European Union (EU, $1,322 billion), and by criticize the lack of focus on market access negotiations.
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-

https://crsreports.congress.gov
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
the EU and UK. The U.S.-EU Trade and Technology
Trade Promotion Authority (TPA). 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
$110 billion of U.S. products. Most tariffs remain in effect.
World Trade Organization (WTO). 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 non-tariff 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

https://crsreports.congress.gov
U.S. Trade Policy: Background and Current Issues

IF10156

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https://crsreports.congress.gov | IF10156 · VERSION 25 · UPDATED

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