What Is the Trade Act Of 1974

The Trade Act of 1974 is a piece of legislation passed by the U.S. Congress to expand American participation in international trade and reduce trade disputes. The enactment of the law happened January 3, 1975. The Act provided the authority to reduce or eliminate trade barriers, improve relationships with non-market Communist countries and countries with developing economies. Further, the Act hoped to bring change to injurious and unfair competition laws.

The Act provided relief for American industries negatively affected by increased international trade and placed tariffs on imports from developing countries. It also provided for U.S. action against foreign countries whose import activities unfairly disadvantaged American labor and industry.

In retrospect, the Trade Act of 1974 and its subsequent iterations have been used more to open foreign markets to U.S. exports and investments than to protect American industries from unfair outside competition.

The Trade Act Of 1974 Explained

International trade has long been a contentious political and economic issue. Opponents argue it takes jobs away from domestic workers. Proponents counter that, while international trade may force domestic workers to move into other lines of work, free trade takes full advantage of specialization and division of labor to improve economic conditions in all participating countries.

The intended purpose of the Trade Act of 1974 was to promote the development of an open, nondiscriminatory and fair world economic system. The fair global system would stimulate fair and free competition between the United States and foreign nations. It also intended to foster the economic growth of, and full employment in, the United States. 

Article II of the U.S. Constitution has been interpreted to vest authority to conduct foreign policy in the president. However, Article 8, Section 1 gives Congress the powers to lay and collect duties and to regulate foreign commerce. Therefore, the ability to control trade with other nations must be delegated by Congress to the president. While the Trade Act of 1974 granted the president authority to engage in trade negotiations, Congress limited presidential jurisdiction by requiring a determination that any agreement will not endanger national security and would promote the purposes of the Act.

Changes in the global economy, under which American trade laws were crafted, led to the creation of the act.

Fast Track of The Trade Act

The Trade Act of 1974 created fast track authority for the president to negotiate trade agreements which Congress may approve or disapprove but cannot amend or filibuster. The fast track authority established under the Act was set to expire in 1980. However, it extended by eight years in 1979, and again in 1988. The 1988 extension was until 1993 to allow for the negotiation of the Uruguay Round within the framework of the General Agreement on Tariffs and Trade (GATT). The ACT received another extension to April 1994, a day after the Uruguay Round concluded as the Marrakesh Agreement transformed the GATT into the World Trade Organization (WTO). The Trade Act of 2002 restored fast track. The Obama administration also sought renewal for fast track authority in 2012.

Key Takeaways

  • The Trade Act of 1974 is legislation passed by Congress to expand U.S. participation in international trade and reduce trade disputes.
  • The act gave American industries negatively affected by increased international trade relief, and placed tariffs on imports from developing countries.
  • It has opened up foreign markets to U.S. exports.
  • It created a fast track authority for the president to negotiate trade agreements which Congress may approve or disapprove, but cannot amend or filibuster.

Real World Example of The Trade Act of 1974

The Trade Act of 1974 has been invoked recently due to President Trump's trade war with China and other countries from which the U.S. imports goods. The Federal Trade Commission (FTC) defines Section 301 of the Trade Act which

"provides the United States with authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the United States may impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices. When negotiations to remove the offending trade practice fail, the United States may take action to raise import duties on the foreign country's products as a means to rebalance lost concessions."

As reported by the Cato Institute, in 2018, President Trump used Section 232 of the Trade Expansion Act of 1962 to impose trade penalties on imported steel products. Imposition of additional tariffs happened without the approval of Congress. The think-tank cites his invoking of section 301:

"the [Trump] administration announced tariffs on $50 billion worth of imports from China for what he saw as unfair practices, such as forced technology transfer and intellectual property theft. When Beijing retaliated with tariffs on U.S. agricultural products, Trump announced that he would hit another $200 billion of imports from China with tariffs."