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The Three Pillars of U.S. Trade Policy

© Bryan Johnson

Students of international trade, both supporters and critics, tend to look at U.S. trade policy abstractly. While this may provide a "big-picture" view of what direction the U.S. is taking with its trade policy, it often paints an obscure picture of trade, lending people to draw the wrong conclusion that there is no policy direction. Therefore, a more accurate picture of U.S. trade policy can be drawn if one were to analyze just how the U.S. has organized its trade policy agenda. Thus, in order to analyze U.S. trade policy accurately, students of international trade should begin by breaking down U.S. trade policy into its essential elements.

America's trade policy is founded on the belief that as America becomes more wealthy, it also exports more goods and services and it invests more overseas. Thus, much of the opinion among America's policymakers in Washington, whether Republican or Democrat, is that in order to ensure continued U.S. economic prosperity, the U.S. must export and invest more overseas. To do this, some policymakers often argue that it is in the "national interest" of the U.S. to liberalize international trade and investment abroad.

To accomplish this, the post-World War II America has developed a strategy that rests on three pillars:

PILLAR #1: The Multilateral Approach. The United States long has been a supporter of the General Agreement on Tariffs and Trade (GATT), an international agreement first signed by 24 countries (including the U.S.) in 1947. The first GATT trade agreement reduced barriers to trade erected mainly during the 1930s. The world's advanced industrial democracies realized that in order to foster economic growth in a post-war era, trade would need to be liberalized. Since 1947, there have been seven rounds of negotiations under the auspices of GATT, with each round liberalizing international trade a little more than the last. The most recent, called the Uruguay Round, was signed into U.S. law in 1994. It created a new body called the World Trade Organization (WTO).

There now are over 100 signatories to GATT. The WTO provides these countries with a means to avoid trade conflicts. It provides a forum for resolving trade disputes without resorting to trade protectionism. The WTO establishes the rules of international trade. All members of the WTO must play by the same rules. These rules govern business contracts, the liability for not fulfilling a contract, and the resolution of disputes over interpretation of a contract's terms. Without agreement on these rules, any nation could arbitrarily conduct business according to its own domestic laws, which often are contrary to the laws of other countries.

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