Trade Adjustment for a Worker-centered Trade Policy

It is important to acknowledge that foreign policy and trade must begin at home, and attention must be paid to jobs lost and communities hurt due to trade, and Americans will remain skeptical of trade deals, as long as their social safety net is lacking. Developing a "trade policy for the middle class," is a focus of ALI, exploring issues that need to be addressed in order for the U.S. to engage in 21st century trade agreements that are sustainable and inclusive.

The piece below by Tim Meyer, discusses a new approach for updating Trade Adjustment Assistance (TAA), which expires in July 2021. ALI shares pieces from selected authors, which do not necessarily reflect the views of ALI but which shed light on issues of importance to ALI's mission.

Trade Adjustment for a Worker-centered Trade Policy

Timothy Meyer
Vanderbilt University Law School

In campaigning for the White House, President Joe Biden argued that “[t]he United States’ ability to be a force for progress in the world and to mobilize collective action starts at home.” Katherine Tai, his nominee to be the United States Trade Representative, described the Biden administration’s approach as “worker-centered.” “U.S. trade policy,” she said, “must benefit regular Americans, communities and workers.”

Few programs are as central to fulfilling that promise as the Trade Adjustment Assistance (TAA) program. In first proposing TAA to Congress in 1962, President Kennedy recognized two truths. First, we as a nation have a responsibility to help our fellow citizens that are harmed by our collective policy choices. Workers, farmers, and businesses invest their time and resources in making themselves competitive within a marketplace that is defined in part by government policies. If the government changes those policies to benefit the nation as a whole, the government must make good, as Billy Joel put it, on “the promises our teachers gave, if we worked hard, if we behaved.”

Second, if the nation does not honor those promises, citizens cannot reasonably be expected to continue to support a policy of trade liberalization. That policy has been an incredible driver of economic growth, both in the United States and abroad. The opening of U.S. markets helped rebuild Europe and Japan after World War II, has lifted millions out of poverty worldwide, and in so doing has been one of the most important human rights policies the United States has ever adopted. But a democratic society cannot ask its citizens to support their own economic demise, or that of their fellows, in the name of the general welfare.

Unfortunately, TAA has largely failed both to vindicate our moral responsibility to our fellow citizens and to shore up support for the larger policy of trade liberalization. For years, union workers have pilloried TAA as “burial insurance.” A 2012 report commissioned by the Labor Department to assess TAA’ performance concluded that, “without considering the benefits of TAA stemming from the possibility that it promotes free trade, the net benefits of the TAA program as it operated under the 2002 amendments were negative.”

With U.S. trade policy at an inflection point, Congress and the Biden Administration have a unique opportunity to remake TAA. The program is currently set to expire this summer, along with Trade Promotion Authority. Congress should take immediate action to reauthorize TAA before it expires. In reauthorizing the program, Congress should take the following steps:

Expand Eligibility and Benefits

TAA has long suffered from limited eligibility criteria and meager benefits. Indeed, no workers or firms were certified as eligible for benefits between the program’s inception in 1962 and 1969. Currently, TAA is available to workers and firms for whom 1) increased imports 2) have “contributed importantly” to both 3) layoffs or the threat thereof and 4) decreased sales or production (a similar program is available to farmers). These criteria create a high bar to establishing eligibility to apply for benefits. Usually, economic distress in a globalized economy of 330 million people does not have a single cause, but rather many interrelated causes: competition from imports; automation both here and overseas; increased input prices; the trade policies of foreign governments; interest rates; and natural disasters, such as hurricanes or wildfires, or public health events like the COVID-19 pandemic, that disrupt production.

Apportioning blame among these causes is often impractical, even where trade is a major contributing factor. Moreover, the complicated eligibility requirements force both the public and private sector to devote resources to navigating bureaucracy, instead of getting help in the hands of those who need it.

Instead, these criteria should be simplified and expanded to reflect how modern trade policy impacts the real economy.

First, applicants for TAA should only have to show that foreign competition is a contributing factor in their economic distress, rather than an “important” factor.

Second, workers, firms, and farmers should be eligible for benefits if exports decline as a result of foreign governments’ trade policy choices. Today, retaliatory tariffs have shuttered foreign markets for many American industries. TAA should recognize and support both our import-competing sectors and our export competing sectors that may be harmed by the United States standing up to unfair foreign practices.

Third, Congress should extend benefits to those whose economic output decreases or fails to increase as a result of competition from imports or retaliatory tariffs overseas. As currently written, benefits are only available upon a finding that output has decreased. This limitation puts TAA out of reach for many workers and firms that may have their opportunities limited by competition with imports.

By way of example, consider a firm that automates part of its assembly line, and thus lays off workers, in order to reduce costs to compete with imports. If the cost savings from automation allow the import-competing firm to maintain its previous levels of production and sales, the laid-off workers would not be eligible for benefits under current law. They are not eligible even though it was pressure from imports that caused their firm to reduce costs and yet still not be able to increase output. In the absence of import competition, the firm might have translated the efficiency gains from automation into increased production, allowing it to keep its employees on staff. TAA’s eligibility criteria should recognize this dynamic.

Apart from eligibility, Congress should increase the benefits available under TAA. The size of those benefits has shrunk in recent years. TAA’s annual appropriations hit $575 million in 2009, the high-water mark for the program, but have declined to $450 million today. Individual benefits are also insufficient to meet the needs of many workers, especially older ones that the 2012 TAA study found have more difficulty transitioning into new lines of work. At a minimum, TAA’s appropriations should be restored to its 2009 high (approximately $700 million adjusted for inflation) and indexed to inflation going forward. Individual benefit caps should be increased, and benefits should become increasingly more generous as workers get older.

Focus on Communities

TAA currently focuses primarily on individuals and firms. But job losses and closures from trade competition hurt more than just the people who lose their jobs. They hurt entire families, communities, towns, and cities. Children may grow up in homes without a stable breadwinner. Minority communities are often disproportionately impacted by the loss of manufacturing jobs. Towns and cities may suffer from brain drain and an eroding tax base as businesses and citizens flee in search of opportunities elsewhere. Those who remain must contend with crumbling infrastructure, a loss of services, and poorer schools. The result is a downward spiral that impacts many more people than just the employees and business owners left without work.

Congress should recognize this reality by expanding TAA to offer aid to trade-impacted communities. Just as with individuals, a community TAA program would require eligibility criteria and the provision of benefits. With respect to the former, the International Trade Commission (ITC) studies the impact of U.S. trade agreements. Congress should expand the ITC’s mandate to require it to evaluate periodically the impact of trade policies on the state, county, and community level, with special attention to historically disadvantaged groups. Pursuant to such studies, the ITC would then certify areas or communities that have suffered significant job losses and economic stagnation as a result of competition with imported goods and services as adversely trade impacted, and thus eligible for TAA Community Benefits.

Those benefits should take the form of investments in the adversely affected “Trade Communities.” Direct spending programs that boost the resilience of the community as a whole will be most effective. For instance, TAA has provided grants to community colleges. This program should be expanded to include grants to primary and secondary schools within the certified communities, as well as to support four-year colleges and research universities whose mission is to give back to their local and regional communities and historically disadvantaged groups.

Supporting families who have had their primary breadwinners laid off means supporting their children throughout their education, not merely once they enter, or are preparing to enter, the workforce. Other similar investments could target education and economic mobility within Trade Communities. For instance, Congress could set the maximum Pell Grant for qualifying students within Trade Communities at 200% of the otherwise applicable maximum. These investments in education would seek to ensure that any harms from trade liberalization do not reach into future generations.

Trade Communities should also be targets for infrastructure investments. These investments could take the form of new programs, such as building public broadband networks that would attract new businesses and provide residents with the means to access a wider range of educational and economic opportunities. Trade communities could also be given preferential access to existing infrastructure programs. For instance, a certain percentage of BUILD (Better Utilizing Investments to Leverage Development) Transportation Discretionary Grants could be set aside for Trade Communities.

Although new direct spending programs are likely to be more effective at providing assistance, tax credits could also be made available to private investors and businesses who invest in Trade Communities. Examples of such credits could include:

i. Making capital gains tax benefits (under 26 U.S.C. § 1400Z-2) to investors in Opportunity Zones, applicable to investors in Trade Communities;

ii. Providing tax credits to businesses that hire full-time employees previously certified by the Department of Labor as eligible for assistance under TAA;

iii. Making tax credits for qualifying activity in Trade Communities refundable or tradeable to ensure that businesses with already low taxes still have an incentive to invest and operate in Trade Communities.

Tie the Future Reauthorization of TAA to the Renewal of Trade Promotion Authority and Trade Agreements

Historically, U.S. trade agreements are indefinite, while TAA is authorized for only a few years at a time. As a result, proponents of trade liberalization can put each new trade agreement in their pocket and begin negotiating the next round of liberalization, while proponents of adjustment assistance are always negotiating for the entire existence of the program. When these negotiations happen at the same time—when TAA is up for reauthorization at the same time as either a new Trade Promotion Authority (TPA) legislation or implementing legislation for a new trade agreement—TAA does relatively well. But when TAA comes up for reauthorization without a companion bill on trade liberalization, it fares poorly. In fact, on several such occasions TAA has been allowed to lapse completely.

This misalignment between adjustment policies and trade liberalization policies might not be too much to worry about if trade liberalization imposed only temporary shocks to the economy. But research has shown that trade liberalization, especially China’s accession to the World Trade Organization in 2001, has created long-term disruptions in some communities. This makes sense. As fast-growing economies with substantial government support for export-oriented businesses enter new product and services markets, they will create further shocks to our economy. Those further shocks can prevent workers from adjusting to the new environment fast enough to prevent long-term consequences for themselves, their families, and their communities.

Both TAA and TPA will expire on July 1. To address the ongoing shocks from trade liberalization, Congress should reauthorize TAA before it expires. When it does so, Congress has an opportunity to craft pathbreaking legislation permanently linking TAA with the framework for negotiating and authorizing trade agreements. There are two ways to accomplish this. First, any new TPA legislation should be explicitly contingent on TAA legislation that lasts as long as the President’s negotiating authority under TPA.

TPA legislation typically identifies negotiating objectives and procedural requirements for the government to follow in pursuing new trade deals. If the government adheres to Congress’s instructions, Congress considers any resulting agreements under expedited procedures (often called fast-track procedures). Any new TPA legislation should make those fast-track procedures contingent on TAA authorization for the during of the TPA legislation. Doing so would ensure that TAA does not lapse before an opportunity arises to renegotiate TAA and TPA at the same time.

This reform would codify the existing practice of reauthorizing TAA when TPA legislation is up for renewal. But it does not address what happens when both TPA and TAA expire and Congress does not renew TPA. These situations—when there is no appetite for new trade agreements, but there are continuing economic disruptions from past trade agreements—are the ones in which TAA has been allowed to lapse in the past. Indeed, we may be in such a situation this summer. President Biden has said that he is not going to prioritize new agreements, which could cast into doubt the passage of new TPA legislation—and thus TAA legislation—before TAA expires on July 1.

To be clear, TAA should be reauthorized this summer, regardless of whether TPA is also renewed. But to prevent this problem in the future, new TAA legislation should contain a provision that prevents the government from renewing or extending the duration of any existing trade agreements unless Congress has passed legislation authorizing TAA for the same duration. Currently, only USMCA requires renewal. That agreement has a 16-year duration, but it can be renewed as early as six years into that term. TAA authorizations, including the one set to lapse this summer, have often lasted for approximately six years. By tying TAA explicitly to the renewal of USMCA, Congress can thus ensure that it and the President have an incentive to work together to renew TAA on a regular basis going forward. For instance, in TAA legislation passed to reauthorize the program this year,

Congress could provide that the United States shall not approve the extension of USMCA under article 34.7 of that agreement unless Congress has reauthorized TAA for a period of time equal to the period of time for which USMCA would be extended. Doing so would provide motivation for proponents of the market access that USMCA provides to also support trade adjustment measures that ensure that workers benefit from U.S. trade policy as much as consumers and multinational corporations.

Put the U.S. commitment to adjustment assistance at home in our trade agreements, alongside our commitments to trade liberalization and labor and environmental standards abroad

When he took office, President Clinton negotiated the so-called NAFTA Side Agreements on Labor and the Environment, the first labor and environmental provisions in trade agreements. Since then, the United States has remained a leader in connecting trade liberalization to the improvement in our trading partners’ labor and environmental practices. That commitment culminated in amendments to the USMCA to provide for better and more effective enforcement of labor standards.

But as important as labor and environment provisions have been, they still focus on the behavior of U.S. trading partners. They do not directly address the impact of trade on communities within the United States.

The United States should remedy this oversight by inserting an Economic Development Chapter in future U.S. trade agreements. Such a chapter would commit parties to monitoring and reporting on, and taking steps to address, any negative impacts from the agreement’s implementation within their own borders. The chapter would provide governments flexibility in satisfying their commitments, and the revisions to TAA proposed above would satisfy the United States’ obligations. But having the chapter within U.S. trade agreements would put investment in trade-impacted communities at home on par with our commitment to improved labor and environmental standards abroad.

The road to including our commitment to a worker-centric trade policy in U.S. trade agreements begins with the renewal of TPA legislation. Congress should make the inclusion of an Economic Development Chapter a negotiating objective in any new TPA legislation. The result would be that the fast-track procedures through which Congress approves trade agreements would be contingent on the government enshrining its commitment to adjustment assistance in any future trade agreements.

In so doing, it would send a powerful signal that, as President Biden has said, foreign policy begins at home.