A Trade agreement is a set of rules agreed upon between countries that govern their economic interactions, with a focus on government barriers to trade, such as tariffs or regulations. They also provide rules on investment, intellectual property rights, and labor and environmental standards. These agreements reduce the role of politics in trade policymaking and bring order to the process of resolving disputes that may arise in trading relationships.
A trade agreement can be multilateral or bilateral. The United States currently has 14 free trade agreements (FTAs), which lower or eliminate the tariffs that nations impose on imported goods, making it easier for U.S. companies to export products and services to their partners in those markets. These agreements also include other provisions that help U.S. companies compete in those markets, including:
Reciprocity is a core feature of all trade agreements. Under the principle of reciprocity, Country A will agree to lower its barriers to trade with Country B in exchange for Country B lowering its barriers to trade with Country A. This is a form of mercantilist protection, but it has proven to be more effective than a simple unilateral move toward liberalization.
The thousands of pages of trade agreements that have been written over the last several decades are credited with shifting the world in the direction of liberalization, and limiting protectionism in the process. They have helped to create a rules-based system that keeps trade wars in check, and have limited the ability of politically influential interests to gain preferential treatment from the federal government.
About the Author
