U.S. Trade Policy: Background and Current Issues

Updated February 21, 2024

U.S. Trade Policy: Background and Current Issues

Congress has primary authority over U.S. trade policy

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

Congress involve aims to boost U.S. innovation, production

and supply chain resiliency in strategic sectors, and restrict

certain trade and investment with the People’s Republic of

China (PRC or China) and Russia (e.g., through sanctions).

Congress also could continue to deliberate issues such as its

role in U.S. trade negotiations, tariffs, and trade programs.

Trade Economics and U.S. Trade Trends

Economic theory generally shows that free trade is

beneficial at the national level, though the benefits and

costs of trade liberalization may be unevenly distributed

within a country. In theory, countries produce and export

goods and services in which they have a higher relative

comparative advantage, and import those domestically

unavailable or less efficiently produced. This assumes that

countries take a market-oriented approach, abide by similar

rules, and offer reciprocal market access. Benefits of trade

can include higher wages and job growth, a wider variety of

products available at lower prices, increased productivity

such as in export-focused industries, and more efficient

resource allocation from competition and economies of

scale. Costs of trade liberalization can include some job and

firm losses, and wage declines, through import competition

and production relocation. These benefits and costs can

vary by industry. Trade liberalization’s economic impact is

difficult to measure and widely debated, in part due to the

many factors that influence economic activity. Most

economists agree that trade liberalization benefits the U.S.

economy overall but imposes adjustment costs for certain

sectors and regions. Workers and firms may need more

assistance and dedicated policies to adjust to trade effects.

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

from the COVID-19 pandemic, trade frictions with China,

and the Russia-Ukraine war revealed some vulnerabilities

posed by this interdependence. After rebounding from the

economic fallout of the pandemic, U.S. total trade (goods

and services, exports plus imports) declined in 2023 by

1.5%. This mirrored trends in global trade, which is

estimated to have contracted in 2023, amid geopolitical

tensions, continued supply disruptions, high inflation, and

rising debt. The top U.S. partners (total trade) in 2022 were,

as a bloc, the European Union (EU, $1,322 billion), and by

country, Canada ($919 bn), Mexico ($864 bn), China ($761

bn), Japan ($310 bn), and Germany ($304 bn).

Figure 1. U.S. Goods and Services Trade

Source: Bureau of Economic Analysis and Census Bureau.

Note: Not adjusted for inflation.

The United States has a long-running overall trade deficit

(imports exceed exports); and the goods trade deficit

outweighs the services trade surplus. Most economists hold

that macro-economic variables affect the deficit more than

trade policy (see Text Box).

Key Components of U.S. Trade Policy

Congress sets U.S. trade negotiating objectives, enacts trade laws,

programs, and agreements, and oversees trade functions

conducted by federal agencies. By statute, the U.S. Trade

Representative (USTR) leads U.S. trade negotiations and

coordinates trade policy through an interagency process, with

formal public and private advisory input. Key trade functions are

•

Trade rules-setting, liberalization, and enforcement.

Negotiation of trade agreements to open markets and set

rules on trade and investment; enforcement of commitments

via dispute settlement and U.S. trade laws.

•

Export promotion and controls. U.S. support for export

financing, market research, advocacy, and trade missions;

licensing and control of strategic exports.

•

Customs, trade remedies and adjustment. Border

regulations; laws to address adverse effects of imports,

national security threats, balance of payments, tariff and nontariff trade barriers, imports made with forced labor; Trade

Adjustment Assistance (TAA) for dislocated workers/firms.

•

Trade preferences. Duty-free access to U.S. market for

eligible developing countries and products, intended to

encourage trade and spur their economic growth.

•

Investment. Protection and promotion through investment

treaties and trade agreements; examination of foreign

investment for national security implications.

Selected Issues and Developments

In its trade policy, the Biden Administration has sought to

strengthen the U.S. economy by aiming to boost U.S.

manufacturing, innovation and competitiveness, and

advance labor and environmental goals. It also has sought

to enforce trade agreements, work with allies and partners

to address trade frictions, and counter and constrain actions

of concern by China and Russia, among other aims. Some

Members and stakeholders support renewed focus on key

issues like supply chain resiliency and worker rights; others

criticize the lack of focus on market access negotiations.

U.S. Trade Laws. Authorities to adjust tariffs and other

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

fairly traded goods, and foreign trade barriers or trade

commitment violations (§201 and §301 of the Trade Act of

1974, respectively); and trade-related national security

concerns (§232 of the Trade Expansion Act of 1962). The

Trump Administration renewed use of some of these

authorities, applying tariffs on steel and aluminum imports

from most trading partners, including China (§232), and on

most imports from China in response to its practices of

concern (§301). U.S. trading partners imposed countertariffs and launched WTO dispute cases. President Biden

has kept many restrictions, but lifted some or reached less

restrictive arrangements (e.g., with the EU, Japan, and UK).

Trade Promotion Authority (TPA). Since the

Reciprocal Trade Agreements Act of 1934, Congress has

periodically delegated to the President limited authority to

reduce U.S. tariffs through proclamation in reciprocal trade

agreements. As non-tariff trade barriers grew and became

the focus of negotiations, Congress adopted “fast track”

authority, now called TPA, in the Trade Act of 1974 to

establish U.S. trade negotiating objectives and expedited

legislative procedures to consider implementing bills on

trade agreements, while preserving its constitutional

prerogatives. The most recent TPA, which Congress

renewed in 2015 (P.L. 114-26), expired in 2021. The Biden

Administration has not requested TPA, and has pursued

trade initiatives as executive agreements that lack a formal

role for Congress in approving outcomes. Congressional

consideration of potential TPA renewal or other authorities

could involve debate over Congress’ role, U.S. trade

priorities and negotiating objectives, and effects of trade on

the U.S. economy, firms and workers, and TAA’s role.

World Trade Organization (WTO). The rules-based,

multilateral trading system is rooted in the WTO, formed in

1995, and its institutional predecessor, the 1947 General

Agreement on Tariffs and Trade (GATT). The GATT was a

key element of the U.S.- and Europe-led post-WWII effort

to build a stable, open, and prosperous global economy.

WTO core principles include nondiscrimination and

transparency. WTO agreements cover goods, services, and

agriculture trade; remove tariff and nontariff barriers; and

establish rules and disciplines (e.g., on intellectual property

rights, IPR) and dispute settlement (DS). Stalled trade

liberalization efforts and issues such as developing country

exceptions, concerns about noncompliance and enforcement

of WTO rules, and ability to address challenges posed by

PRC statist practices have led WTO members to call for

reforms, including of the DS system. Members achieved

some key outcomes at their 2022 ministerial, such as a

multilateral deal on fisheries subsidies and a trade and IPR

response to the pandemic, which some view as boosting the

WTO’s credibility. Many outstanding issues remain.

Trade Agreements and Other Initiatives. As WTO

negotiations have stalled or progressed slowly, bilateral and

regional trade agreements have proliferated, with over 360

in force globally. The United States has 14 comprehensive

free trade agreements (FTAs) with 20 countries. The Trump

Administration made limited changes to the U.S.-South

Korea FTA, enacted a partial-scope agreement with Japan

covering some tariffs and digital trade, and negotiated the

U.S.-Mexico-Canada Agreement (USMCA). Replacing the

1994 North American Free Trade Agreement (NAFTA),

USMCA has new provisions on digital trade, state-owned

enterprises, rules of origin for autos, and other key changes.

The Biden Administration has focused on “a workercentered trade policy that fosters inclusive prosperity,” and

has not pursued new comprehensive FTAs. In addition to

focusing on trade enforcement (e.g., USMCA worker rights

commitments), the Administration has several ongoing

trade initiatives with targeted agendas that exclude tariffs

and market access provisions. The U.S. and 13 partners in

the regional Indo-Pacific Economic Framework for

Prosperity (IPEF) reached agreements by November 2023

on supply chains; clean energy and infrastructure; and

tax/anti-corruption. IPEF partners continue negotiations on

select trade issues. In June 2023, the Administration signed

its first agreement in a separate, similar initiative with

Taiwan. In March 2023, the Administration signed a critical

minerals agreement (CMA) with Japan related to electric

vehicle battery production, and is negotiating CMAs with

the EU and UK. The U.S.-EU Trade and Technology

Council aims to cooperate on supply chains, standards,

emerging technologies, digital connectivity, export controls,

and nonmarket economy concerns. Other efforts include the

Americas Partnership for Economic Prosperity (APEP) and

engagement with India on trade frictions and technology.

Some in Congress have called for the Administration to

pursue new FTAs (e.g., with the UK), negotiate tariff

reductions, and be more transparent in its trade talks.

U.S.-China Trade. China is an important market for the

United States but poses major challenges. PRC statist

economic policies and the market-distorting behaviors they

incentivize are of concern for many in Congress. In 2018,

USTR, under Section 301 authority, determined that China

engages in forced technology transfer, cyber-enabled theft

of U.S. IP and trade secrets, discriminatory and nonmarket

licensing practices, and state-funded strategic acquisitions

of U.S. assets. USTR imposed tariffs on about $370 billion

of U.S. imports from China. China countered with tariffs on

$110 billion of U.S. products. Most tariffs remain in effect.

In May 2022 USTR began the statutory four-year review of

its Section 301 action and has said the review will conclude

in spring 2024. In response to China and other concerns,

Congress has sought to boost U.S. innovation, production,

and supply chain resiliency in strategic sectors; strengthen

national security review of foreign investment and export

controls; and restrict U.S. trade and investments tied to

PRC policies of concern.

Potential Activity in the 118th Congress

Congress may continue to deliberate on issues including

• Congress’ role in trade policy vis-à-vis the executive,

including on tariffs and trade agreements;

• U.S. trade policy’s historic focus on liberalizing

markets, renewed emphasis on industrial policy, and

effects on the U.S. economy;

• U.S. leadership in global trade, including in the WTO,

and in cooperation with others;

• U.S. trade relations with major economies, and options

to address concerns such as statist and unfair practices;

• trade issues with regard to technology and innovation,

labor, energy, the environment, supply chain resiliency

and diversification, and economic development;

• enforcement of FTAs; prospects for new agreements;

alignment of executive trade initiatives with

congressional aims; and

• the effectiveness of the current U.S. trade and

investment policy toolkit in protecting the U.S. economy

from unfair practices and preserving national security.

Shayerah I. Akhtar, Specialist in International Trade and

Finance

Cathleen D. Cimino-Isaacs, Specialist in International

Trade and Finance

Karen M. Sutter, Specialist in Asian Trade and Finance

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U.S. Trade Policy: Background and Current Issues

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