Trade Adjustment Assistance (TAA) is a federal program of the United States government to act as a way to reduce the damaging impact of imports felt by certain sectors of the U.S. economy. The current structure features four components of Trade Adjustment Assistance: for workers, firms, farmers, and communities. Each cabinet-level department was tasked with a different sector of the overall Trade Adjustment Assistance program. The program for workers is the largest, and is administered by the U.S. Department of Labor. The program for farmers is administered by the U.S. Department of Agriculture, and the firms and communities programs are administered by the U.S. Department of Commerce.
TAA has long been criticized as too small relative to the scale of trade-related job loss, with some labor leaders describing it as "burial insurance." Research on the political effects of the policy finds that counties with a history of successful petitions were less likely to support protectionism and more likely to support Democratic candidates. When these benefits are concentrated in places with lower levels of import competition, improved access to TAA benefits reduces support for pro-trade candidates.
As of July 1, 2022, the program has been terminated.
History Historically, there have been various ideas to provide relief for those harmed by tariff reductions in the United States.
Trade Adjustment Assistance consists of four programs authorized under the Trade Expansion Act of 1962 and defined further under the Trade Act of 1974 (19 U.S.C. § 2341 et seq) (Trade Act). The original idea for a trade compensation program goes back to 1939.Steve Charnovitz, "Worker Adjustment: The Missing Ingredient in Trade Policy," California Management Review, Winter, 1986, p. 157. Later, it was proposed by President John F. Kennedy as part of the total package to open up free trade. President Kennedy said: "When considerations of national policy make it desirable to avoid higher tariffs, those injured by that competition should not be required to bear the full brunt of the impact. Rather, the burden of economic adjustment should be borne in part by the Federal Government."Kennedy, John F. 1963. Public Papers of the Presidents of the United States, 1963. Washington: Government Printing Office. Copy online at http://www.presidency.ucsb.edu/ws/index.php?pid=8688
Justification
For workers Supporters argue that free trade offers widespread benefits among consumers, workers and firms in the U.S. in terms of lower prices, higher efficiency and quality, and more jobs. They claim that gains from negotiated trade deals are large and widely distributed across sectors. For example, in 2011 there were 9.7 million jobs supported by exports, nearly 15% more than in 2010.U.S. International Trade Administration (March 12, 2012). Jobs Supported by Exports: An Update, by Johnson, M. and Rasmussen, C., Office of Competition and Economics Analysis Manufacturing and Services. Benefits from free trade agreements (FTA) with Chile, Singapore, Australia, Morocco, and South Korea for the U.S. economy are estimated in $4 billion, $17 billion, $19 billion, $6 billion and $30 billion, respectively.Congressional Research Service (February 1, 2011). Trade Agreements: Impact on the U.S. Economy, RL31932, by J. K. Jackson.
In order to achieve trade benefits, however, the U.S. economy must reallocate production factors between sectors. Thus, free trade also leads to costs associated with workers displaced by import competition and offshore outsourcing. According to the Department of Labor (DOL), displaced workers are defined as "persons 20 years of age and older who lost or left jobs because their plant or company closed or moved, there was insufficient work for them to do, or their position or shift was abolished".Department of Labor (August 24, 2012). Worker Displacement: 2009–2011, USDL-12-1719, available at www.bls.gov/cps. The International Labour Organization (ILO) states that workers bore high adjustment costs such as unemployment, lower wage during transition, obsolescence of skills, training costs, and personal costs (e.g. mental suffering). These trade costs, albeit relatively smaller than the benefits, are highly concentrated by region, industry and worker demographics. For instance, some occupations, like teacher, have not experienced import competition while for shoe manufacturing occupations import competition has increased by 40 percentage points.International Labour Organization (2011). Trade and Employment: From Myths to Facts, by Jansen, M., Peters, R. and Salazar-Xirinachs, J., available at http://www.ilo.org/wcmsp5/groups/public/ed_emp/documents/publication/wcms_162297.pdf.
In general, manufacturing workers are most affected by import competition compare to workers in other sectors. Furthermore, while gains from trade require a long time to take full effect, costs are felt rapidly, particularly in less competitive sectors.Commission of the European Communities (CEC) (March 1, 2006). Proposal for a Regulation of the European Parliament and of The Council establishing the European Globalisation Adjustment Fund, Impact Assessment, SEC (2006) 274.
There is a strong correlation between import penetration and unemployment. Ebenstein et al. (2009) find that a 1 percentage point increase in import penetration leads to a 0.6 percentage point decrease in manufacturing employment in the U.S. resulting in a reduction of manufacturing jobs of almost 5%.Ebenstein, A. et al. (2009). Estimating the Impact of Trade and Offshoring on American Workers using the Current Population Surveys, NBER Working Paper 15107. According to a report by the Progressive Policy Institute, between 2007 and 2011, 1.3 million direct and indirect jobs were lost to increasing imports of goods and services.Progressive Policy Institute (PPI) (March 2012). Hidden Toll: Imports and Job Loss since 2007, by Mandel, M. and Carew, G., Policy Brief, available at http://progressivepolicy.org/wp-content/uploads/2012/03/03.2012-Mandel_Carew_Hidden-Toll_Imports-and-Job-Loss-Since-20071.pdf. Similarly, Kletzer (2005) estimations suggest that industries facing high import competition account for 40% of manufacturing job losses.Kletzer, L. (2005). Globalization and Job Loss, from Manufacturing to Services, Economic Perspectives, Q II, pp. 38–46. The Economic Policy Institute (EPI) estimates that by 2015 the overall U.S. trade deficit will correspond to the loss of additional 214,000 jobs.Economic Policy Institute (EPI) (August 23, 2012). The China Toll: Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state, EPI Briefing paper nº345, by R. Scott, at http://www.epi.org/files/2012/bp345-china-growing-trade-deficit-cost.pdf.
Although trade-dislocated workers are not significantly different from workers displaced by other reasons, they present some slight differences. They tend to be older, less educated, more tenured and production-oriented, have higher earnings on the lost job and fewer transferable skills, and the prevalence on women is higher than for other displaced workers. These characteristics are associated with limited labor mobility and reemployment difficulties, especially for workers with obsolete skills who do not receive additional training, no matter the reason of displacement.GAO (November 14, 2012). Trade Adjustment Assistance: Commerce Program has helped Manufacturing and Services Firms, but Measures, Data, and Funding Formula could be enhanced, Testimony Before the Subcommittee on Government Organization, Efficiency, and Financial Management, Committee on Oversight and Government Reform, House of Representatives, by Alfredo Gomez Furthermore, asymmetric information in absence of good job-search skills and geographic mismatch lead to prolonged unemployment.OECD (2005b). Trade-adjustment Costs in OECD Labour Markets: A Mountain or a Molehill?, in OECD Employment Outlook (pp. 23–72) Hence, trade-displaced workers face longer periods to find a new job and have low reemployment rates (63% during the last two decades according to Kletzer, 2005). Reemployment is particularly challenging for older workers. The DOL (2012) reports that in 2012 reemployment rates for workers ages 55 to 64 and 65 years and over were 47 and 24% respectively while the rate for those ages 20 to 54 was about 62%.
Once dislocated workers obtain a new job, they suffer significant wage reductions.Abbring et al. (1999). Displaced Workers in the United States and the Netherlands, this paper is part of the CILN/Uojohn project on Losing Works, Moving On: International Perspectives on Workers Displacement About two thirds of dislocated workers have lower wages in the new job and one quarter of displaced workers from manufacturing who find a new full-time job suffer earning losses of 30% or more.Kletzer, L. (2005). Globalization and Job Loss, from Manufacturing to Services, Economic Perspectives, Q II, pp. 38–46 The reason is that many workers find jobs in services sector where salaries are lower. Ebenstein et al. (2009) find that displaced workers from manufacturing who find a job in the services sector suffer a wage decline of between 6 and 22%. They conclude that a 1 percentage point increase in occupation-specific import competition is associated with a 0.25 percentage point decline in real wages.
Import competition impacts negatively not only dislocated workers but also their families and communities. Displaced workers fall behind in their mortgage payments and in providing health care to their families. Families must spend down assets to smooth consumption.Stephens, M. (2003). Job Loss Expectations, Realizations, and Household Consumption Behavior, NBER Working Paper 9508 There is evidence that displaced workers are in worse health after losing a job.Strully, K. (2009). Job Loss and Health in the U.S. Labor Market, Demography, 46(2), pp. 221–46. According to a Report by the Corporation for Enterprise Development (CFED), more than 46% of the jobless lack health insurance and 31% of workers without insurance do not see a doctor although sick. If the worker is able to be relocated in other job in other region the whole family is displaced and children are uprooted from their schools, increasing domestic tensions. The phenomenon of displaced workers has a broader impact because it also affects aggregate demand for goods and services and tax collections.CEFD (2004). Promising Practices to Assist Dislocated Workers, working paper prepared by Schweke, W. for The North Carolina Rural Economic Development Center
In brief, trade leads to an unequal redistribution of costs and benefits. The adjustment process impacts not only displaced workers but also the whole society and economy. Furthermore, labor reallocation from inefficient to competitive sectors aimed at realizing the benefits of trade can be impeded by several obstacles described above, prolonging the transition period and increasing the adjustment costs. In this framework, several scholars and policy-makers have argued that trade-related adjustment costs merit a policy response.