The Structural Transformation of U.S. Foreign Economic Policy and Its Economic Effects

Gusang Kang
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Gusang Kang: KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)

No 26-7, World Economy Brief from Korea Institute for International Economic Policy

Abstract: Over the past decade, U.S. foreign economic policy has undergone a structural transformation that extends beyond partisan political cycles. What initially appeared to be a temporary shift toward protectionism under the first Trump administration has consolidated into a broader orientation centered on economic security, strategic competition with China, and domestic industrial revitalization. The renegotiation of the existing trade agreements, withdrawal from multilateral frameworks, and imposition of Section 232 and Section 301 tariffs marked a clear departure from the liberal trade order that had characterized U.S. policy for decades. Rather than reversing this trajectory, the Biden administration utilized core tariff measures and expanded industrial policy through the CHIPS and Science Act and the Inflation Reduction Act, reinforcing a production-centered strategy aimed at reshaping global supply chains.

At the core of this transformation lies a reconfiguration of incentives governing global capital allocation and trade patterns. The Tax Cuts and Jobs Act (TCJA) fundamentally restructured the U.S. international tax regime through provisions such as GILTI, FDII, and BEAT while lowering the statutory corporate tax rate, thereby altering firms’ location and investment decisions. At the same time, Section 301 tariffs sought to change relative prices in global value chains, reduce U.S. dependence on China, and induce supply chain realignment. Together, these measures illustrate how U.S. foreign economic policy increasingly integrates trade, tax, and industrial instruments into a coherent framework of economic statecraft.

Against this backdrop, this report empirically evaluates the economic effects of these policy instruments. It examines how the TCJA affected U.S. outward and inward foreign direct investment and how Section 301 tariffs influenced trade flows at the product level, particularly with respect to trade diversion involving Korea. By employing panel regression and event-study methodologies, the study aims to identify causal impacts and dynamic adjustment patterns. The findings provide evidence that recent U.S. foreign economic policy has produced measurable structural effects on global investment and trade flows, offering important implications for Korea’s strategic economic positioning.

Keywords: U.S. Foreign Economic Policy; Foreign Direct Investment; Section 301 Tariffs; Trade Diversification; Economic Security (search for similar items in EconPapers)
Pages: 6
Date: 2026-03-12
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