William_T._Bianco,_David_T._Canon]_American_Polit

638 Chapter 17 | Foreign Policy

policy. On the other hand, Trump’s willingness to hold a summit meeting with North

Korean Leader Kim Jong Un is a clear exception to this trend. Time will confirm which

path the administration will follow in its use of diplomacy.

Trade and economic policies

Trade and economic policies can be crucial instruments of foreign policy: they can sustain

economic growth in the United States and elsewhere, as well as create foreign markets for

the goods produced by America’s domestic industries. Figure 17.2 shows total American

trade (imports and exports) with other countries over the last 20 years, expressed as a

percentage of U.S. gross domestic product (GDP), which measures the size of the U.S.

economy. In recent years, imports and exports together have constituted almost 40 percent

of GDP. Investment returns (profits from American-owned companies located abroad) are

also becoming an ever-larger component of total trade. In dollar terms, the report cited in

Figure 17.2 estimated that the total value of U.S. trade with other nations was over $5 trillion

per year. Clearly, foreign trade is a critical component of the American economy.

The main tools of trade policy are tariffs and trade agreements. A tariff is a tax on

the import or export of certain commodities, and a trade agreement sets tariff levels or

limits the quantities of particular items that can be imported or exported. The United

States International Trade Commission maintains a list of all tariffs in effect.^48 By

adjusting tariff rates, the government can help or hurt domestic industries. High tariffs

on imports help American producers charge lower prices than foreign competitors, and

low tariffs on exports help American producers sell to overseas markets.

Over the last two generations, the United States and most other nations have been

lowering tariffs and establishing free-trade zones, agreements to eliminate tariffs on

all imports and exports among specific nations. Examples include a long-standing

free trade agreement with Canada and Mexico, and the Central American Free Trade

Agreement (CAFTA) among the United States, five Central American nations, and

the Dominican Republic. Other organizations, such as the World Trade Organization

(WTO), facilitate negotiations over tariffs and provide a mechanism for adjudicating

cases when one nation believes that another is using tariffs unfairly. Finally, the United

tariff

A tax levied on imported or exported

goods.

World Trade Organization

(WTO)

An international organization created

in 1995 to oversee trade agreements

between nations by facilitating

negotiations and handling disputes.

FIGURE

1 7. 2

U.S. Imports

and Exports as

a Percentage

of GDP

This figure illustrates the importance

of trade to the U.S. economy. In recent

years imports and exports have

accounted for almost 40 percent

of U.S. economic activity, and the

percentage is increasing over time.

Based on these data, what arguments

would you make for lowering or

increasing barriers to trade?

Source: Office of the United States Trade Representative, 2018 Trade Policy Agenda and 2017 Annual Report,

http://www.ustr.gov (accessed 6/20/18).

1970 1980 1990 2000

10

20

30

40

50%

2010 2015

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