Trade Policy

U.S. trade policy promotes economic growth through regulations and agreements that control imports and exports with other countries. From free trade agreements to bilateral investment treaties, learn how trade policy impacts the economy and your personal finances.

How US Trade Policy Impacts the Economy

Trade policy refers to the agreements and regulations surrounding imports and exports between different countries. It is used to promote economic growth and competitiveness.

The main instruments of trade policy in the U.S. are negotiating agreements, setting rules, and enforcing trade commitments and laws; supporting export financing and licensing, market research, and trade missions; regulating and adjusting laws on imports and exports; encouraging trade and growth with developing countries; and protection and promotion through investment treaties and agreements.

The U.S. Trade Representative (USTR) coordinates and negotiates trade policy, but Congress is the arm that sets the U.S. trade policy objectives, laws, programs, and agreements, and oversees the USTR and other federal agencies involved in trade policy. The president is also allowed to negotiate trade agreements through the Trade Promotion Authority (TPA).

Trade protectionism is a stance that some countries adopt to protect their domestic industries from foreign competition. It may work in the short run to bolster domestic production and business, but in the long run, trade protectionism may make a country and its industries less competitive in international trade.

Strategic trade policy refers to agreements and/or treaties that put conditions on trade between countries. For example, this may happen when two exporting nations export goods exclusively to a third party country, or when two nations compete in each others’ markets. This implies that a strategic trade policy may focus only on trade that limits competition, leading to an oligopoly.

Key Terms

Imports Exports Tariffs NATO Trade War GATT World Trade Organization Competitive Advantage Current Account NAFTA Foreign Exchange Reserves Trans-Pacific Partnership

Imports are foreign goods and services bought by citizens, businesses, and the government of another country. It doesn't matter what the imports are or how they are sent. They can be shipped, sent by email, or even hand-carried in personal luggage on a plane. If they are produced in a foreign country and sold to domestic residents, they are imports.

Exports are goods and services that are produced in one country and purchased by the residents of another country. It doesn't matter what the good or service is, or how it's sent.

Tariffs are custom taxes that governments levy on imported goods. This effectively raises the price of foreign goods compared to domestic rivals.

The North Atlantic Treaty Organization (NATO) is an alliance of 30 countries that border the North Atlantic Ocean. The Alliance includes the U.S., most European Union members, the United Kingdom, Canada, and Turkey.

A trade war is when a nation imposes tariffs or quotas on imports and foreign countries retaliate with similar forms of trade protectionism. As it escalates, a trade war reduces international trade.

The General Agreement on Tariffs and Trade (GATT) was the first multilateral free trade agreement. It first took effect in 1948 as an agreement between 23 countries, and it remained in effect until 1995—at which point its membership had grown to 128 countries. It was replaced by the World Trade Organization.

The World Trade Organization is a global membership group that promotes and manages free trade. It does this in three ways. First, it administers existing multilateral trade agreements. Every member receives "most favored nation" trading status, which means they automatically receive lowered tariffs for their exports. It also settles trade disputes and manages ongoing negotiations for new trade agreements.

A competitive advantage is what makes an entity's goods or services superior to all of a customer's other choices. While the term is commonly used for businesses, the strategies work for any organization, country, or individual in a competitive environment.

The current account is a country's trade balance plus net income and direct payments. The trade balance is a country's imports and exports of goods and services. The current account also measures international transfers of capital.

The North American Free Trade Agreement (NAFTA) was a treaty between Canada, Mexico, and the United States that eliminated most tariffs between the counties. It was replaced by the United States-Mexico-Canada Agreement (USMCA) on July 1, 2020.

Foreign exchange reserves are the foreign currencies held by a country's central bank. They are also called foreign currency reserves or foreign reserves. There are seven reasons why banks hold reserves. The most important reason is to manage their currencies' values.

The Trans-Pacific Partnership (TPP) was a free trade agreement between the U.S. and 11 other countries that border the Pacific Ocean: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. President Trump withdrew the United States from the agreement in 2017.

Explore Trade Policy

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