In the United States, certain import-sensitive products may have relatively high tariff rates (e.g., 25% for pickup trucks, 50% for cotton jackets/coats). Other nations also protect certain sectors either through high tariffs or stringent import quotas.
With respect to supply chains, border barriers still raise the cost of imports regardless of whether the product is traded within a supply chain or is traded in open markets. An established supply chain, however, is likely to be less sensitive to border barriers, since such networks are based on long-term relationships and established lines of communication. Over the long-term, however, if border barriers are raised or lowered enough to offset other non-monetary considerations, companies may change the location of manufacturing or other segment of the manufacturing process. Border barriers play a greater role in business decisions on initial plant location, but such decisions also call into play the whole range of factors affecting the competitiveness of the location being considered. Traditional trade and investment policy, therefore, still appears viable in pursuing U.S. goals of economic growth, employment, and a rising standard of living over the long term.
Currently, three major avenues exist to reduce tariffs. First, tariff reductions and other trade liberalizing measures are being negotiated on a multilateral basis through the World Trade Organization (WTO), although the current Doha Round is stalled.29 Second, on a bilateral or regional basis, countries are negotiating free or preferential trade agreements.30 Countries also provide trade preferences to certain nations (particularly those with the lowest income levels) or nations with special historical relationships (e.g., former member of an empire). A third, but rarely used method, is to provide normal trade relations status (most favored nation status) to a country that currently does not enjoy such status (e.g., North Korea, Cuba).
Two major avenues are used to increase tariffs or other barriers to trade. For countries that are members of the WTO, tariffs are bound (normally cannot be increased), but they can be raised as a result of various escape clause or market disruption cases. The escape clause or safeguard procedures include anti-dumping or countervailing duty investigations. Also current U.S. tariffs as actually applied tend to be lower than the levels that are bound under World Trade Organization agreements. A second method is through trade sanctions imposed for security or other political considerations (e.g., banning trade with Burma/Myanmar).31 The use of dispute settlement mechanisms (at the World Trade Organization or provided for in free trade agreements), the use of escape clauses, and invoking safeguard procedures provide a way to target trade policy at a specific product.
Bank spreadsheet at http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/ 0,,contentMDK:21051044~pagePK:64214825~piPK:64214943~theSitePK:469382,00.html.
29 See CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda, by Ian F. Fergusson.
30 For a discussion of the effects of free-trade agreements, see CRS Report RL31356, Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy, by William H. Cooper.
31 See CRS Report RL33944, Trade Primer: Qs and As on Trade Concepts, Performance, and Policy, by Raymond J. Ahearn et al.