U.S. Tariff Policy: Overview, IN FOCUS(IF11030), CRS, Feb. 28, 2023.
Christopher A. Casey, Analyst in International Trade and
Finance
Introduction
A tariff is a customs duty levied on imported and exported
goods and services. Historically, countries used tariffs as a
primary means of collecting revenue. Today, other taxes
account for most government revenue in developed
countries. Tariffs are now typically used to protect domestic
industries or as leverage in trade negotiations and disputes.
The U.S. Constitution empowers Congress to set tariffs, a
power that Congress has partially delegated to the
President. The United States is also a member of the World
Trade Organization (WTO) and a party to a number of trade
agreements, which include specific tariff-related
commitments. Congress and the President thus create U.S.
tariff policy within the context of a rules-based global
trading system.
Rules-Based Global Trading System
The rules-based global trading system was established
following World War II. It began as the General Agreement
on Tariffs and Trade (GATT), which was later integrated
into a larger set of agreements establishing the WTO. This
system has aimed to reduce trade barriers and prevent trade
wars by establishing rules for the use of tariff and nontariff
barriers to trade. Among this system’s core rules with
regard to tariffs are
Nondiscrimination. Under the most-favored nation
(MFN) rule, a country must extend any trade
concession, such as a reduced tariff rate, granted to one
country member to all other WTO members. There are
exceptions, such as preferential rates for FTAs, special
treatment for developing countries, and WTO-allowed
responses to unfair trading practices.Binding Commitments. Through multilateral
negotiations, countries bind themselves to ceilings on
tariff rates for specific imports. That ceiling is called the
bound rate, which can be higher than actual applied
rates. Lowering bound rates has been a general goal of
each of the multilateral negotiations.Transparency. The WTO requires members to publish
and report their tariff rates and other trade regulations.Safety Valves. The WTO agreements permit members
to raise tariffs to address unfair trade practices and to
allow domestic industries to adjust to sudden surges in
imports in some circumstances.
Following the establishment of the GATT in 1947 and the
WTO in 1995, global tariff rates declined significantly,
spurring trade and opening markets for U.S. exports. Since
the establishment of the WTO, the value of exports of U.S.
goods have increased more than 160% adjusted for
inflation.
U.S. Tariff Policy
Who Makes U.S. Tariff Policy?
The Constitution grants the power to lay and collect duties
and to regulate commerce with foreign nations to Congress.
The Constitution grants the authority to negotiate
international agreements to the President. Since tariffs are
no longer a primary source of revenue, they have
increasingly become an instrument of U.S. international
trade and foreign policy. As such, Congress now works
with the President to set tariff policy by granting authority
to negotiate trade agreements and to adjust tariffs in certain
other circumstances.
Presidential Trade Promotion Authority (TPA).
Prior to the 1930s, Congress usually set tariff rates itself. As U.S.
and global tariff rates increased during the Great
Depression, U.S. exports decreased. Congress responded by
authorizing the President to negotiate reciprocal trade
agreements that reduced tariffs through proclamation
authority up to a pre-set boundary. Hence, such an
agreement could enter into force without further
implementing legislation. However, nontariff barriers to
trade (such as discriminatory technical standards) became a
greater focus of trade negotiations in the late 1960s. As a
result, it became difficult to predict the substance of the
negotiations and authorize changes to existing U.S. laws by
proclamation before the negotiations took place. Congress
addressed this challenge in 1974 by establishing expedited
procedures to implement more complicated future trade
agreements. Under these procedures, currently known as
Trade Promotion Authority (TPA), Congress establishes
U.S. trade negotiating objectives as well as consultation and
notification requirements. If the President satisfies these objectives
and requirements, implementing legislation for an agreement
may receive expedited treatment including an
“up or down vote” without amendment. The most recent
TPA, the Bipartisan Comprehensive Trade Priorities and
Accountability Act of 2015, expired in the summer of 2021.
Presidential Discretionary Authority over Tariff Rates.
In dozens of statutes, Congress has empowered the
President to adjust tariff rates in response to specific trade-
related concerns that touch on issues of executive interest,
such as foreign policy and national security, or require an
administrative finding by a U.S. agency. For example,
Section 232 of the Trade Expansion Act of 1962 empowers
the President to adjust tariffs on imports that threaten to
impair U.S. national security. Section 5(b) of the Trading
with the Enemy Act and Section 203 of the International
Emergency Economic Powers Act empower the President
in a time of war or emergency to impose tariffs on all
imports. Section 201 of the Trade Act of 1974 empowers
the President to raise tariff rates temporarily when the U.S.
International Trade Commission (ITC) determines that a
sudden import surge has caused or threatened serious injury
to a U.S. industry. Congress has also empowered U.S.
agencies to impose duties to offset injurious unfair trade
practices, based on industry petitions or through initiation
by the Commerce Department.
How Is U.S. Tariff Policy Administered?
U.S. Customs and Border Protection (CBP) administers the
collection of tariffs at U.S. ports of entry according to rules
and regulations prescribed by the Secretary of the Treasury.
When a good enters a U.S. port of entry, merchandise is
classified and tariffs are assessed using the U.S.
Harmonized Tariff Schedule (USHTS), a compendium of
tariff rates based on a globally standardized nomenclature.
Today, importers self-classify and declare the value or
quantity of their goods. CBP reviews the paperwork,
performs occasional audits, and then collects any applicable
tariffs or penalties as well as any administrative fees.
Finally, CBP deposits any revenue from tariffs or other
penalties into the General Fund of the United States.
What Has U.S. Tariff Policy Been?
Over the past 70 years, tariffs have never accounted for
much more than 2% of total federal revenue. In FY2020,
for example, CBP collected $74.4 billion in tariffs,
accounting for approximately 2.2% of total federal revenue.
Instead, the United States has generally used its tariff policy
to encourage global trade liberalization and pursue broader
foreign policy goals.
Since 1934, the United States has generally reduced or
eliminated many tariffs as part of bilateral and multilateral
trade agreements. By supporting the creation of the GATT
and the WTO, the United States sought to reduce tariff rates
globally within a rules-based trading system. Roughly 70%
of all products enter the United States duty free.
U.S. reductions in tariff rates have not always inspired
others to follow. During the most recent (Doha) round of
WTO trade negotiations, the United States unsuccessfully
attempted to convince advanced emerging economies, such
as China, India, and Brazil, to commit to lower their bound
tariff rates, which they declined to do. This dispute was
arguably one of the reasons that the Doha round of
negotiations was unable to produce an agreement.
Low U.S. tariff rates have also served as an instrument to
achieve other foreign policy goals. For example, to
encourage global economic development, Congress created
the Generalized System of Preferences (GSP), which
authorizes the President to give unilateral duty-free
treatment to some products from some developing
countries. The United States has also pursued FTAs as part
of broader foreign policy and security goals.
Issues for Congress
For more than 80 years, Congress has delegated extensive
tariff-setting authority to the President. This delegation
insulated Congress from domestic pressures and led to an
overall decline in global tariff rates. However, it has meant
that the U.S. pursuit of a low-tariff, rules-based global
trading system has been the product of executive discretion.
While Congress has set negotiating goals, it has relied on
Presidential leadership to achieve those goals.
The Trump Administration was openly critical of low-tariff
policies and made extensive use of the authorities delegated
to the President to increase tariffs on certain goods. As a
result, the amount of duties paid on U.S. imports doubled
from FY2015 to FY2020 from approximately $37 billion to
$74 billion. The Biden Administration has maintained some
of those policies. Congress may want to consider whether
the current restrictions on such delegated authorities
adequately protect congressional interests and reflect
congressional prioritie
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