U.S. Trade Policy and the Case for Open Markets

Statement of Issue

With President Trump upending the Trans-Pacific Partnership, what can be done to move United States policy on trade towards an open market scenario?

Executive Summary

The United States economy has made some positive strides with the Trump Administration. However, President Trump's decision to upend the Trans-Pacific Partnership has caused a setback in the desire for the country to become a global trader. The drive for open markets has created a need within the United States government to adopt policy that will allow for trade to expand over to international waters, thus allowing the United States to grow in terms of becoming the main contender in the global economy.

Without the introduction of policy that can promote open trade, the United States may face increasing competition from other foreign powers like China. It is up to the United States government to choose to continue the progress towards an open market and trade system. Doing so may see great improvements in United States manufacturing and promote the country for foreign investment and trade.

Background and Historical Context of U.S. Trade Policy

Home to one of the strongest and richest economies, the United States has taken aim at constructing a truly international trading system that must begin with support for an open market. For the United States to adopt an approach towards global integration, there must be changes in how the government sees trading and adoption of an open markets policy. For example, free trade—an open market—allows consumers the best chances and most choices for improving their standard of living.

After World War II, the United States saw a dramatic increase in foreign trade as well as the formation of an international trading framework based on an open economy principle. The United States, at the forefront of such changes, needs to take the same position again and open up trade with the world economy. In the past, global trade talks stalled, leading to a turn toward bilateral and regional free trade agreements.

For instance, former President Barack Obama won passage of free trade agreements with three countries—South Korea, Colombia, and Panama—before leaving office. He also negotiated the Asia-centered Trans-Pacific Partnership, furthering the goal of an open market and open trade. However, the Trans-Pacific Partnership (TPP) was something President Donald J. Trump did not want continued, and so it was upended. The decision to upend the TPP has led to a desire to advocate for a more open market to provide a boost in U.S. manufacturing and make it easier for American businesses to compete in global markets.

But what is the current U.S. trade policy?

After World War II, the institutions of international trade policy evolved, led mainly by Europe and the United States. Twenty-three countries signed the General Agreement on Tariffs and Trade (GATT) in October 1947, and within thirty-nine years it expanded to include one hundred and twenty-three nations. Every country within the agreement remained committed to the principles of open economies, freer trade, and lower tariffs.

During those years, global tariffs fell from 30 percent to under 5 percent. However, in 1986, President Ronald Reagan helped launch the creation of the World Trade Organization (WTO) via the Uruguay Round of negotiations, which would be finalized under President Bill Clinton in 1994 and aimed to address the GATT system's perceived limitations, such as intellectual property, cross-border investment, agriculture, and trade in services. Although development continued even into 2001 with the last round of negotiations, there were still problems regarding agriculture policy. India and China sought to retain flexibility in imposing safeguard duties on import tariffs, while also pushing for fewer farm subsidies in both Europe and the United States.

Current U.S. Trade Framework and the TPP

With a stalled WTO process, the shift for U.S. policymakers has been to focus on finishing smaller bilateral and regional investment and trade deals. Through the North American Free Trade Agreement enacted in 1994, Canada and Mexico were able to trade freely with the United States. However, with Trump ordering the withdrawal of the TPP deal in January 2017, instead pushing for an emphasis on bilateral deals, the United States may be largely set back in creating the coveted open market and globalist trade agreement Trump's predecessors wanted and worked towards. This presents the main issue: the withdrawal from the Trans-Pacific Partnership (TPP).

The TPP is often called a "megaregional" deal because it spans several continents. What began in 2002 with a few Pacific Rim countries culminated in former President Barack Obama's push towards a trade agreement with Asia-centered negotiations. By 2015, TPP included twelve nations, one of which was Japan. China was not part of the list of participating countries.