Trade agreements can reduce the barriers between countries that prevent or restrict international trade by lowering tariffs and other policies, such as regulations on investment and intellectual property rights. They can be bilateral or multilateral. Some are regional, such as the North American Free Trade Agreement (NAFTA), and some are global in scope, such as the World Trade Organization, established in 1995.

The WTO has been credited with helping to lower tariff levels and increase world trade. The agreements also set international trade rules and create a means to settle disputes that may arise.

These agreements can help boost businesses’ competitiveness and international sales by decreasing the landed cost of imports, which is how much it costs to transport goods into a country from abroad. They can also make it easier to sell services overseas by reducing restrictions on data transfer. However, they can hurt domestic industries and labor markets by increasing competition with foreign companies and pushing workers to seek jobs in other sectors.

The United States is party to three regional trade agreements — USMCA with Canada and Mexico, CAFTA-DR with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua and the European Union — and one global agreement, the World Trade Organization. The nation has many more bilateral and single-nation agreements with nations from Australia to Peru. Regional agreements typically go beyond tariffs and include multiple policy areas at the border and behind the border. Agreements that cover fewer policy areas are called “shallow,” while those that include more are known as “deep.” Congress delegated the executive branch authority to negotiate these trade agreements through the Trade Promotion Authority (TPA) Act of 1974.