A Trade agreement is an arrangement that establishes rules for trade between nations. They can be bilateral or multilateral and cover a range of economic activity, from broad tariff reductions to the trade in goods and services. The agreements that the Trump administration has been negotiating since threatening to impose sky-high tariffs on all of its trading partners fall into this category and typically feature five core sets of commitments: tariff reductions, cooperation on nontariff barriers, digital trade rules, economic security coordination, and commercial considerations (which include investment promises and agreements to purchase goods such as airplanes and liquefied natural gas from the United States). The Office of the U.S. Trade Representative oversees advisory committees representing industry, agriculture, labor, small business, retailers, and environmental and conservation interests to comment on draft proposals. These are the same committees that the administration consults with on a regular basis before launching negotiations with foreign governments.
Trade agreements discipline how governments collect tariffs on imported goods, by requiring them to follow certain rules based on the country of origin of a good and its customs classification and value. They also restrict government policies that limit competition and raise profits above market levels for corporations, such as subsidies, Buy National procurement requirements, and other regulations limiting the entry of foreign competitors.
In addition to reducing barriers, trade agreements provide stability and predictability for companies, which can operate more efficiently if their costs and rules do not constantly change. Despite the frequent criticism of trade agreements as corporate-dominated exercises, on balance they act as a check against protectionism and help shift the world toward freer trade.