Politics, Polarization and Trade Adjustment Assistance

The protracted wrangles over renewing a “modest and obscure” benefits program called Trade Adjustment Assistance (TAA)—which lapsed in February—starkly reveal how foreign trade policy can be held hostage to domestic political deadlock.

The seemingly unstoppable momentum of trade liberalization and the importance of cushioning its disproportionate impact on labor—which is relatively immobile and cannot migrate as freely as capital—make it germane to reconsider proposals for an internationalized or multilateral approach to TAA, which can potentially insulate the program from partisan disagreements at home.

To recap, Trade Adjustment Assistance for workers was established under the Trade Expansion Act in 1962 and amended in 1974, 2002, and 2009. It provides health care, wage insurance, funding for occupational re-training, job search and relocation allowances, and other benefits to workers affected by the vicissitudes of global competition. It therefore performs an arguably crucial welfare function by providing a temporary security net for displaced workers and helps them to transition into growing sectors. Furthermore, whatever its detractors may claim about its practical efficacy, the TAA program has indisputably played a determinative role in making free trade politically palatable to organized labor groups, and hence viable.

However, it was the free-trade championing Republicans who ended the expanded 2009 program after taking control of the House, because of their hardened stance against government spending.

This effectively scuttled the chances of new free trade agreements passing muster.  In 2006, the Bush administration negotiated three free trade agreements with South Korea, Colombia and Panama.  The government estimates that the deals would increase annual exports of American goods by about $12 billion, and may help revive the flagging economy. Congressional Democrats—who insist that their approval be conditioned upon reinstating TAA benefits—predictably blocked these deals for almost five years.

The 2011 compromise version of TAA approved by the Senate on September 22 makes critical departures from the 2009 provisions. For instance, it reduces the number of weeks of income support provided from 156 to 117 (with up to 13 additional weeks available only under certain circumstances). It scales back a tax credit to help unemployed workers pay for health insurance (down to 72.5% of premium cost, from 80% in 2009), and makes it harder for people to receive income assistance if they are not already in a retraining program. The outlay has also been reduced to about $900 million over three years, compared with about $2.1 billion in 2009.

These developments undercut the core premise of a globalized trading regime, i.e., the notion that free trade can be regulated in a consistent and profitable manner outside the confines of domestic politics.

This has led to scholars and policy makers regularly proposing measures to create an international or multilateral solution for the issue of adjustment assistance to displaced workers. For instance, in 1967, the Trades Union Congress of the UK proposed an international fund for worker adjustment assistance, to the OECD. The purpose of the fund would be to permit an increased flow of manufactured imports from developing to industrial countries. In exchange for an infusion of adjustment funds when needed, government programs would have to meet certain internationally set standards. More recently, scholars and practitioners point to the European Globalization Fund established in 2006. The Fund pools resources and helps workers find new jobs and develop new skills when they are displaced due to changing global trade patterns (such as when a factory is moved outside the European Union), or due to the global financial crisis.