tag:theconversation.com,2011:/us/topics/trade-adjustment-assistance-32516/articlesTrade Adjustment Assistance – The Conversation2020-06-25T12:07:46Ztag:theconversation.com,2011:article/1411102020-06-25T12:07:46Z2020-06-25T12:07:46ZA selective retreat from trade with China makes sense for the United States<figure><img src="https://images.theconversation.com/files/343026/original/file-20200620-43225-encqmm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A moored container ship in Qingdao, China.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/longshoremen-rope-a-recently-moored-freighter-in-qingdao-news-photo/1217233473?adppopup=true">Getty Images</a></span></figcaption></figure><p>Trade tensions and mistrust are <a href="https://time.com/5856106/hawaii-summit-escalating-us-china-tensions/">escalating between the U.S. and China</a>.
Soon after U.S. Secretary of State Mike Pompeo announced that China <a href="https://www.bloomberg.com/news/articles/2020-06-18/pompeo-says-china-recommitted-to-trade-deal-in-hawaii-meeting">recommitted to its January trade deal obligations</a> after a face-to-face meeting with Beijing’s top diplomat on June 17, he <a href="https://apnews.com/b4c410ed886dfb4141017e158f1c1ddf">upbraided the country for using disinformation to drive a wedge</a> between Europe and the U.S. President Trump, meanwhile, <a href="https://www.latimes.com/politics/story/2020-06-21/the-mini-tragedy-of-john-bolton">is attempting to use</a> his tough stance with Beijing as a foreign policy selling point.</p>
<p>Behind the headlines and politics, a basic question remains: How much benefit is the U.S. getting out of its trade relationship with China? As a <a href="https://www.rit.edu/directory/aabgsh-amit-batabyal">scholar in international trade theory and policy</a>, I believe that answer must be looked at through a wider lens than just economics – one that includes national security. </p>
<h2>A model where both countries benefit</h2>
<p>Economists have long agreed that free international trade can benefit countries when it is based on the principle of <a href="https://www.britannica.com/topic/comparative-advantage">comparative advantage</a>. Popularized by the English economist <a href="https://www.econlib.org/library/Enc/bios/Ricardo.html">David Ricardo</a>, this means that countries should export goods they can make more efficiently and less expensively to other countries, and import goods the other country can make more efficiently. </p>
<p>Free trade theory states that such trade, as opposed to trade that uses tariffs and quotas, makes nations better off. That’s because it <a href="https://research.stlouisfed.org/publications/page1-econ/2017/11/01/does-international-trade-create-winners-and-losers/">creates overall benefits for countries</a>. There may still be individual losers in certain industries, but overall, all nations are deemed winners.</p>
<p>It is, in theory, possible to take some of the winners’ gains in a nation and give it to that country’s losers, and still have some surplus left over. The “losers” are typically the industries that compete with imports and its workers.</p>
<p>The practical problem with this line of reasoning is that the U.S. typically either does not make compensatory payments to the losers from trade or, when it does, <a href="https://www.demos.org/sites/default/files/publications/Broken_Buffer_FINAL.pdf">the payments are puny</a>. Uncle Sam provides assistance to those who lose out from free trade via the <a href="https://www.dol.gov/agencies/eta/tradeact">Department of Labor’s Trade Adjustment Assistance program</a>.</p>
<p>As long as workers displaced by international trade enroll in a job training program, the adjustment assistance provides relocation assistance, subsidized health insurance and extended unemployment benefits. However, the program has been <a href="https://www.piie.com/publications/chapters_preview/3979/05iie3979.pdf">severely criticized by workers themselves</a>, even earning the nickname <a href="https://theconversation.com/want-to-help-free-trades-losers-make-adjustment-assistance-more-than-just-burial-insurance-67036">“burial insurance</a>,” as in arriving just in time to bury the victims. </p>
<p>Credible statistics are hard to come by to show the true monetary gains from trade. However, the economists Arnaud Costinot and Andres Rodriguez-Clare have shed valuable light on <a href="https://pubs.aeaweb.org/doi/pdf/10.1257/jep.32.2.3">this question</a>. Their research shows that the share of spending on imports in the U.S. is smaller than other countries. That is in large part because the U.S. is a large country, and most trade occurs within the nation.</p>
<p>Costinot and Rodriguez-Clare point out that about 8 cents out of every dollar spent in the U.S. is spent on imports. </p>
<p>We can now ask: How much would it cost U.S. consumers if the country stopped trade with other nations? The answer to this question is known as the welfare cost of zero trade or, equivalently, the welfare gains from trade.</p>
<p>Because the U.S. doesn’t trade that much, the welfare gains from international trade in the U.S. are smaller than in many other countries. Costinot and Rodriguez-Clare estimate these gains from all trade for the U.S. range from 2% to 8% of <a href="https://www.bea.gov/data/gdp/gross-domestic-product">gross domestic product</a>.</p>
<p>For a large and diversified nation such as the U.S., this is relatively small. The reason is that the share of all U.S. spending that goes to imports is <a href="https://www.bea.gov/data/gdp/gross-domestic-product">around 6%-8%</a>. Put differently, the U.S. is a lot less reliant on imports than many other more trade-reliant countries. To compare, Belgium – a much smaller but more trade-reliant nation – <a href="https://pubs.aeaweb.org/doi/pdf/10.1257/jep.32.2.3">spends 30% on imports</a>. </p>
<p>If the U.S. were to move to economic self-sufficiency by stopping all trade with other nations, then it would be worse off, but based on the previous research, not dramatically so.</p>
<p>While that may not be practical overall, it is worth looking at it through the lens of U.S.-China trade specifically.</p>
<h2>What COVID-19 shows us</h2>
<p>To manage the outbreak of the coronavirus, the Chinese government closed <a href="https://www.nytimes.com/2020/02/27/business/economy/china-coronavirus-shipping-ports.html">large numbers of factories and ports</a>. Entire cities and even provinces were locked down. These stringent measures have caused significant disruptions to U.S. firms with China-only supply chains. Even more significant is the extent to which the U.S. is dependent on China for <a href="https://theconversation.com/the-silent-threat-of-the-coronavirus-americas-dependence-on-chinese-pharmaceuticals-130670">vital goods such as medicines</a>. </p>
<p><a href="https://www.economist.com/briefing/2020/05/14/covid-19s-blow-to-world-trade-is-a-heavy-one">More generally,</a> in 2018, China supplied about 42% of the world’s exports of personal protective equipment. Almost 75% of Italy’s imported blood thinners came from China, and so did 60% of the ingredients for antibiotics imported by Japan.</p>
<p>This dependence poses a national security threat. For example, if relations with China were to deteriorate further, then China could hold back shipping on, for instance, vital pharmaceutical ingredients. China has been known to <a href="https://dailyillini.com/opinions/2019/10/17/china-challenges-american-companies/">abuse its market power</a>.</p>
<p>Most standard economic analyses about the gains and losses from trade typically do not take national security issues into account. However, some research exists on how to intervene in an economy to attain <a href="https://academic.oup.com/restud/article-abstract/36/1/27/1525261?redirectedFrom=fulltext">“noneconomic objectives</a>.” The fact that trade can be weaponized was alluded to by the <a href="https://www.econlib.org/library/Smith/smWN.html">economist Adam Smith</a>, who observed in 1776 that national security can trump free trade concerns. </p>
<p>This is because if certain goods are necessary for national security, then free trade in these goods may reduce a nation’s capacity to produce the goods, thereby making them scarce should a national emergency arise.</p>
<p>Given the increasing tensions and complexities around trade with China, I believe it may be time to selectively retreat from trading with the Chinese over supplies critical to national security. Such a retreat will have to involve, among other controls, setting procurement rules so that health care providers buy U.S. products, reducing and ideally eliminating the dependence on China-only supply chains, and monitoring cross-border mergers and acquisitions. In other words, we would still have globalization, but with diminished Chinese influence. </p>
<p>This will be difficult to implement on a practical level given the close relationships the U.S. markets have with China – <a href="https://www.marketwatch.com/story/heres-all-the-stuff-the-us-imports-from-china-thats-causing-a-huge-trade-deficit-2018-03-23#:%7E:text=The%20U.S.%20imported%20a%20record,apparel%2C%20furniture%20and%20industrial%20supplies.">and the roughly US$539.5 billion in goods it imports each year</a>. But short-term pain from the transition may well result in long-term gain from protecting national security.</p>
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<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Although there will be some economic harm, it may be time to retreat from free trade with China and focus on our national security concerns.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/931042018-03-21T10:41:00Z2018-03-21T10:41:00ZTariffs won’t save American steel jobs. But we can still help steelworkers<p>President Donald Trump has been promising to save American manufacturing, and the steel industry in particular, <a href="https://theconversation.com/why-trumps-threat-to-slap-tariffs-on-foreign-steel-is-a-bad-idea-80847">since the presidential campaign</a>. His attempt to follow through on that promise was the March 8 tariff increase on foreign steel and aluminum, <a href="http://fortune.com/2018/03/08/trump-signs-tariffs-steel-aluminum/">arguing that the tariffs were necessary</a> to protect U.S. industries and workers. </p>
<p>Trump joins <a href="https://theconversation.com/trumps-protectionism-continues-long-history-of-us-rejection-of-free-trade-91190">a long line of presidents</a>, both Republican and Democrat, who have used trade policy in an attempt to create or protect jobs – <a href="http://www.baltimoresun.com/news/opinion/editorial/bs-ed-0129-trade-war-20180125-story.html">almost always in vain</a>. </p>
<p>Research shows that tariffs <a href="https://wol.iza.org/articles/international-trade-regulation-and-job-creation/long">only delay</a> the industries’ inevitable decline. At best, Trump’s tariffs will only hurt industries dependent on steel and aluminum, like auto and construction, which together <a href="https://www.washingtonpost.com/opinions/tariffs-will-force-trump-to-break-key-campaign-promises/2018/03/06/d3d28ee4-2158-11e8-badd-7c9f29a55815_story.html?utm_term=.7cd2bdfb25b5">employ more than 7 million workers</a> – compared with steel’s 160,000. At worst, it will <a href="https://theconversation.com/trade-wars-are-good-3-past-conflicts-tell-a-very-different-story-92801">spark a trade war</a> that will harm many other industries and, ultimately, mean higher prices for every single American.</p>
<p><a href="https://scholar.google.com/citations?user=0M6hB44AAAAJ&hl=en&oi=ao">Our review</a> of recent research on the topic shows that the choice between tariffs and abandoning workers is a false one. More targeted alternative policies are available that can protect workers without damaging the U.S. economy – or sparking a trade war.</p>
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<img alt="" src="https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211244/original/file-20180320-80640-1s8sk1k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">President Donald Trump holds up his proclamation on steel imports.</span>
<span class="attribution"><span class="source">AP Photo/Susan Walsh</span></span>
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</figure>
<h2>Politics of protection</h2>
<p>Regardless of political party, promising to protect vulnerable manufacturing industries – along with blaming foreign trade for their woes – has always been an effective vote-winning strategy. </p>
<p>Trump’s rivals in the 2016 campaign <a href="https://www.nytimes.com/2016/10/09/magazine/why-are-politicians-so-obsessed-with-manufacturing.html">made similar promises</a> to shield American workers from foreign competition. </p>
<p>Sixteen months after winning the election, Trump has followed through on his pledge by slapping a tariff of 25 percent on imported steel and 10 percent on aluminum. Both industries <a href="http://www.politifact.com/truth-o-meter/statements/2018/mar/13/donald-trump/donald-trump-right-aluminum-steel-industries-have-/">have experienced rapid declines</a> in employment in recent decades.</p>
<p>Reality, however, isn’t so simple.</p>
<h2>US manufacturing is not in decline</h2>
<p>Despite the political rhetoric, data from the Federal Reserve show that American manufacturing is hardly in decline. In fact, U.S. industrial production <a href="https://fred.stlouisfed.org/series/INDPRO?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=categories">is at an all-time high</a> and has grown pretty steadily for more than a century. </p>
<p>In 2017, the American economy churned out twice as much industrial production as it did in 1979. That means the economy produced more items and at a higher value than ever before in everything from steel to furniture to cheese. </p>
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<p>Instead, what has declined precipitously are <a href="https://fred.stlouisfed.org/series/MANEMP">manufacturing jobs</a>. Employment in the sector dropped 36 percent from its peak in 1979 through January 2017. </p>
<p>The reason these two facts coexist is that industrial productivity has skyrocketed, with the average worker in 2017 producing roughly 300 percent more than someone in 1979 did. </p>
<h2>Steel’s story</h2>
<p>American steel tells a similar story – with a twist. </p>
<p>As opposed to manufacturing in general, American steel production has <a href="https://fred.stlouisfed.org/series/IPN3311A2RN">declined from its heyday in the 1970s</a>. </p>
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<p>That drop, however, took place in the early 1980s, not in the last three decades when trade expanded rapidly. Thus, it is difficult to see how trade could be a main driver behind the low output.</p>
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<p>More importantly, the number of steel jobs has fallen at a much greater pace thanks to significant increases in productivity. Each ton of steel produced today <a href="https://apnews.com/cae426730cd74e64932e4be7fa5cdebc/As-Trump-weighs-tariff,-US-steelmakers-enjoy-rising-profits#/pq=FGkzC0">takes a mere 1.5 worker hours</a>, whereas it took more than 10 hours in 1980. Just as with <a href="https://www.technologyreview.com/s/515926/how-technology-is-destroying-jobs/">manufacturing more broadly</a>, technology and automation – not trade – explain the lion’s share of job losses.</p>
<p>Still, it is hard to deny the close relationship between trade and manufacturing output. More trade means better salaries, lower prices and better-quality products across most of the economy. And the overwhelming majority of research in economics supports the notion that trade and the <a href="https://www.aeaweb.org/articles?id=10.1257/aer.89.3.379">total size of an economy are closely linked</a>.</p>
<p>This connection is because of something economists call “comparative advantage.” As trade increases, countries will tend to make more of what they are most effective at producing. This expands the overall amount of production across the world and lowers prices for consumers. This is part of why world steel production has <a href="https://www.worldsteel.org/media-centre/press-releases/2017/world-steel-in-figures-2017.html">more than doubled since 1980</a>. </p>
<p>But this comes at a cost: The industries and workers in countries that are less efficient at something will suffer, as has been the case with U.S. steel, whose share of world production has decreased from <a href="https://www.worldsteel.org/en/dam/jcr:6640a8bf-6b7d-41e2-bf79-83e290b5fbdf/Steel+statistical+yearbook+1980.pdf">16 percent in 1979</a> to just <a href="https://www.worldsteel.org/en/dam/jcr:3e275c73-6f11-4e7f-a5d8-23d9bc5c508f/Steel+Statistical+Yearbook+2017.pdf">4.8 percent in 2016</a>.</p>
<p>In other words, while international trade is a crucial part of economic development, benefiting almost everyone in the U.S. economy, some inevitably lose out. In recent decades, this same fate has befallen other U.S. industries, typically those that are very labor intensive, such as the <a href="https://www.theguardian.com/business/2016/nov/05/five-us-industry-sectors-decline-voters-trump">textile and apparel industries</a>. </p>
<h2>Manufacturing clusters</h2>
<p>Compounding the negative impact, manufacturing industries tend to be in <a href="https://www.aeaweb.org/articles?id=10.1257/aer.103.6.2121">concentrated geographic areas</a>. </p>
<p>Companies <a href="http://www.nber.org/chapters/c7977.pdf">often benefit</a> from being close to their competitors because that attracts lots of skilled workers, making manufacturing easier and cheaper. This is why so many car manufacturers are centered around Detroit and why a <a href="https://www.cbsnews.com/news/welcome-to-button-town-china/">single city in China</a> produces 60 percent of the world’s buttons.</p>
<p>If steel production were spread out across the country and not <a href="http://www.nwitimes.com/business/lake-newsletter/indiana-again-no-in-steel-production/article_40d11950-767e-59b9-9233-e81ffb31384d.html">concentrated in a few states</a>, it would be easier for displaced workers to find new jobs quickly.</p>
<p>Instead, steelworkers are <a href="https://www.marketwatch.com/story/here-are-the-states-most-threatened-by-steel-tariffs-2018-03-06">centered around places</a> like Indiana, Pennsylvania, Ohio and Michigan. And some communities, such as Gary, Indiana, which are built around the steel industry and the workers it employs, are particularly at risk. </p>
<p>Tariffs, however, cannot hope to keep technology and automation at bay, and <a href="https://wol.iza.org/articles/international-trade-regulation-and-job-creation">research overwhelmingly shows</a> that tariffs are ineffective at mitigating the negative impact from trade.</p>
<p>The last time the U.S. imposed a steel tariff, in 2002, the <a href="https://theconversation.com/george-w-bush-tried-steel-tariffs-it-didnt-work-92904">economy lost more jobs</a> than the entire steel industry employs. </p>
<h2>What can be done</h2>
<p>That does not mean the government should throw up its hands. There are tangible and straightforward policies that national or state governments can pursue to help displaced steelworkers, without hurting everyone else in the process. </p>
<p>The key is to first understand the real challenge. It isn’t that these workers are suddenly without employment – Americans on average <a href="https://www.bls.gov/news.release/tenure.nr0.htm">hold a job for just 4.2 years</a> – it’s that they cannot easily find new work, particularly when it requires moving to a new industry or different part of the country. And the reasons are twofold: a lack of information and the high costs of relocation.</p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=851184">Economists have found</a> that workers – particularly low-skilled and less-educated ones – often fail to find new work simply because they don’t know how to locate open positions or effectively use common services like private job search engines. </p>
<p>And because laid-off steelworkers are often geographically concentrated, finding new work means going where the jobs are, which can be prohibitively expensive. On average, relocation costs (including the psychological cost of having to adjust to a new community) are more the <a href="https://www.aeaweb.org/articles?id=10.1257/aer.100.3.1008">twice the yearly income</a> of a typical U.S. worker. </p>
<p>While the government is powerless to preserve old steel jobs, it has powerful tools at its disposal to address these problems.</p>
<p>Currently, the federal government offers <a href="https://theconversation.com/want-to-help-free-trades-losers-make-adjustment-assistance-more-than-just-burial-insurance-67036">trade adjustment assistance</a> to provide workers displaced by trade with training and some extended unemployment benefits. But research shows that the program <a href="https://www.wsj.com/articles/aid-for-workers-untouched-by-debate-over-trade-deal-1431277766">doesn’t provide enough benefits to offset costs incurred by workers</a>, <a href="https://theconversation.com/want-to-help-free-trades-losers-make-adjustment-assistance-more-than-just-burial-insurance-67036">who call it “burial insurance.”</a> </p>
<p>To solve the first problem, government agencies could do more to bring information about available jobs to the displaced workers, which would substantially increase the odds that they find new positions – and <a href="https://openknowledge.worldbank.org/handle/10986/26352">at little cost</a>. </p>
<p>The relocation problem requires more money in the form of direct assistance to the workers to help them move. While it may initially sound expensive – perhaps tens of thousands of dollars per worker – it is actually much less costly than tariffs. An Obama-era tariff on Chinese tires, for example, <a href="https://www.uschamber.com/series/above-the-fold/would-tariff-wall-really-protect-us-jobs">cost the economy more than US$900,000 per job</a> temporarily saved. We could save taxpayers (who, of course, are consumers) money by giving each displaced worker $100,000 to find and move to a new job.</p>
<p>As has been repeated incessantly, <a href="https://research.stlouisfed.org/publications/page1-econ/2017/11/01/does-international-trade-create-winners-and-losers/">trade creates winners and losers</a>, but substantially more of the former than the latter. If the government used just a fraction of the benefits accrued to the winners and reinvested it in the few workers who end up worse off, there would be no losers at all.</p><img src="https://counter.theconversation.com/content/93104/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>President Trump’s new tariffs suggest he doesn’t understand why American steel and aluminum have been hurt in the first place.Morten Wendelbo, Lecturer, Bush School of Government and Public Service; Research Fellow, Scowcroft Institute of International Affairs; and, Policy Sciences Lecturer, Texas A&M University Libraries, Texas A&M UniversityRaymond Robertson, Professor of Economics and Government, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/670362016-10-25T02:32:51Z2016-10-25T02:32:51ZWant to help free trade’s losers? Make ‘adjustment assistance’ more than just burial insurance<p>If there’s one thing that <a href="http://www.theatlantic.com/business/archive/2012/04/4-politically-controversial-issues-where-all-economists-agree/255600">nearly all economists agree on</a>, it’s that getting rid of trade restrictions is generally good for a country’s economy. </p>
<p>Doing so leads to a <a href="https://www.whitehouse.gov/sites/default/files/docs/cea_trade_report_final_non-embargoed_v2.pdf">higher national income</a>, faster economic growth, higher productivity and more competition and innovation. Freer trade also tends to lower prices and improve the quality of the goods that are particularly important in the budgets of poorer families.</p>
<p>But you certainly wouldn’t know it from the current political landscape. Hillary Clinton <a href="http://www.ontheissues.org/2016/Hillary_Clinton_Free_Trade.htm">has repudiated</a> the Trans-Pacific Partnership (TPP) she once hailed as the gold standard of trade deals. Donald Trump <a href="http://money.cnn.com/2016/07/06/news/economy/trump-nafta">would go much further</a> and not only tear up the North American Free Trade Agreement (NAFTA) but <a href="http://fortune.com/2016/07/25/donald-trump-free-trade-wto/">consider withdrawing</a> from the World Trade Organization (WTO) as well.</p>
<p>So what has made free trade – which still <a href="http://www.voanews.com/a/survey-americans-largely-support-free-trade/3499026.html">gets the support</a> of most Americans – such a political pariah?</p>
<p>A major explanation is that there are losers as well as winners from its effects. The winners may be far more numerous, yet the impact on the losers, from lost jobs and lower wages, is more intense and personal.</p>
<p>I’ve been a steady and vocal proponent of the view that freer trade’s benefits far outweigh its costs. When the former president of the United Auto Workers, Owen Bieber, called me “that free-trade bitch at GM” in the early 1990s, I <a href="https://books.google.com/books?id=lryyypm3mRAC&pg=PA236&lpg=PA236&dq=that+free-trade+bitch+at+GM&source=bl&ots=n7842le-NS&sig=hSGCdNVf0AFOsfy6WAyTx2jChxM&hl=en&sa=X&ved=0ahUKEwj93466zuLPAhVKaT4KHXVKA6oQ6AEIHjAA#v=onepage&q=that%20free-trade%20bitch%20at%20GM&f=false">took it</a> as a compliment. While I still believe the research (mine included) supports lowering restrictions on trade, we haven’t called enough attention to the “losers,” partly because we underestimated how much they’d be hurt.</p>
<h2>Where liberalizing trade went wrong</h2>
<p>Both Trump and Bernie Sanders <a href="http://fivethirtyeight.com/features/manufacturing-jobs-are-never-coming-back/">have made opposition to freer trade</a> key to their platforms, often citing the loss of over 4.5 million manufacturing jobs since 1994.</p>
<p><a href="http://www.ddorn.net/papers/Autor-Dorn-Hanson-ChinaShock.pdf">Recent research</a> indicates that China’s unforeseen emergence in the 1990s as a global competitor in the world markets can be blamed for at least 20 percent of that, significantly more than <a href="http://www.nber.org/papers/w1906">earlier estimates</a>. </p>
<p>A <a href="http://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00587#.WA4XNqOZOV4">just-published paper</a> that estimates the effects of NAFTA on blue-collar workers, not only in goods industries but service industries as well, found similar results. Particularly vulnerable were the footwear and oil and gas industries and the states of North and South Carolina.</p>
<p>Both studies suggest that the American labor market is not as fluid and flexible as we thought. Job losers were not able to find new ones as quickly as expected nor command the same level of wages when they did. This finding is consistent with <a href="http://www.csmonitor.com/USA/2016/0701/Why-this-time-free-trade-has-hit-American-workers-so-hard">other research</a> indicating that the in-country mobility of blue-collar American workers has been falling.</p>
<p>In other words, while the overall welfare effects of trade liberalization are generally positive, the impact on some subgroups, particularly the less well-educated, are negative and much larger.</p>
<p>And the United States <a href="https://www.oecd.org/unitedstates/United%20States_final_EN.pdf">is less generous</a> than other rich countries in providing both reemployment assistance and income support to workers hurt by these changes. </p>
<p>The primary U.S. program aimed at mitigating this negative impact is known as trade adjustment assistance (TAA). That its intended recipients call it “<a href="https://www.washingtonpost.com/news/wonk/wp/2015/02/03/obamas-proposal-to-help-workers-who-lose-out-on-trade-deals-probably-wont-win-democratic-votes/">burial insurance</a>” sort of sums up its image problem.</p>
<h2>Softening the blow of free trade</h2>
<p>Trade adjustment assistance has gone through a variety of forms since its origins in the 1950s, but today <a href="https://www.doleta.gov/tradeact/factsheet.cfm">it provides displaced workers</a> with relocation assistance, subsidized health insurance and extended unemployment benefits. A <a href="http://blogs.wsj.com/briefly/2015/06/15/5-questions-on-trade-adjustment-assistance/">typical condition</a> of aid is that recipients have to enroll in a job training program.</p>
<p>The <a href="https://piie.com/publications/chapters_preview/3979/05iie3979.pdf">idea came in 1954</a>, when the head of the Steelworkers Union first suggested helping workers adversely affected by imports. Eight years later, Congress turned the idea into law as a <a href="https://piie.com/commentary/speeches-papers/reforming-trade-adjustment-assistance-keeping-40-year-promise">crucial carrot</a> to win the backing of the AFL-CIO for the <a href="https://www.gpo.gov/fdsys/pkg/STATUTE-76/pdf/STATUTE-76-Pg872.pdf">Trade Expansion Act</a>, which gave the president the <a href="http://naldc.nal.usda.gov/download/IND43861850/PDF">unilateral authority</a> to cut many tariffs by up to 50 percent over a five-year period.</p>
<p>All the aid provision did, however, was provide workers with temporary and severely delayed supplements to their unemployment compensation. It was little used because the eligibility requirements were so strict. </p>
<p>The TAA program was formally established as part of the <a href="http://legcounsel.house.gov/Comps/93-618.pdf">Trade Act of 1974</a>, which created the so-called “fast-track” process limiting Congress to a simple up-or-down vote on negotiated trade deals and set up a permanent trade office. The program eased eligibility requirements, specifying only that “imports contributed importantly” to a job loss, and offered expanded unemployment insurance. As a result, the number of petitions under the program surged, mainly from the auto, steel, textile and apparel industries, and most were certified for payment. </p>
<p>Despite this, the trade assistance earned the epithet “burial insurance” by many in the labor movement. As a <a href="http://www.finance.senate.gov/imo/media/doc/Hrg95-87.pdf">Republican senator put it</a> in 1978:</p>
<blockquote>
<p>“Adjustment assistance has often been scornfully, but accurately, called burial assistance – arriving only in time to dispose of the victim.”</p>
</blockquote>
<p><a href="http://legcounsel.house.gov/Comps/93-618.pdf">Ronald Reagan put the program</a> high on his hit list when he became president in 1981. The size of individual payments was reduced and capped at 52 weeks, joining a training program became a requirement for aid. And far fewer petitioners received aid.</p>
<h2>TAA limps on</h2>
<p>Over subsequent years the program (including various offshoots) grew and shrunk but continued to be used primarily to win congressional authorization of various trade agreements.</p>
<p>The Clinton administration created <a href="https://www.doleta.gov/programs/factsht/nafta.cfm">NAFTA-Transitional Adjustment Assistance</a> – for those who lost jobs, hours or wages due to increased imports from or shifts of production to Mexico or Canada – to win labor votes for the North American trade deal. </p>
<p>That helped NAFTA <a href="http://articles.latimes.com/1993-11-18/news/mn-58150_1_trade-pact">win narrow approval</a> in 1993, but the main result of the new program was overlap and confusion with the original and led to declining support for free trade throughout the ‘90’s.</p>
<p>President George W. Bush reformed the assistance programs as he tried to muster support for a <a href="https://www.wto.org/english/tratop_e/dda_e/dda_e.htm">new round of trade negotiations</a> early in his first term. The <a href="https://www.gpo.gov/fdsys/pkg/BILLS-107hr3009enr/pdf/BILLS-107hr3009enr.pdf">Trade Act of 2002</a> eliminated NAFTA-TAA as a separate program, reauthorized the fast-track process and established a health tax credit and partial wage insurance for older, lower-paid displaced workers who found new jobs but at less pay than the old ones. </p>
<p>These changes – which made TAA the most generous and expensive it’s ever been – <a href="https://piie.com/publications/chapters_preview/3979/05iie3979.pdf">failed to satisfy organized labor</a>, which still tended to see the program as burial insurance and unable to make up for the loss of “good manufacturing jobs.” A <a href="http://www.wsj.com/articles/aid-for-workers-untouched-by-debate-over-trade-deal-1431277766">study commissioned by Congress</a> concluded that workers who took trade assistance fared no better, in terms of employment and earnings, than those who got regular unemployment insurance. </p>
<p>Another big change came in 2009 when for the first time trade assistance was reauthorized on its own, rather than in conjunction with other trade initiatives, as part of the <a href="https://www.dol.gov/recovery/implement.htm">American Recovery and Reinvestment Act</a>. It expanded the program, most notably by extending it to service sector workers.</p>
<p>Since then, it has been reauthorized several times, usually as part of a trade package. Most recently, a 2015 bill <a href="https://theconversation.com/fast-track-overcomes-key-hurdle-but-obstacles-remain-as-trade-deals-hang-in-balance-42221">restored fast-track</a> for President Barack Obama – aimed at helping him seal the TPP trade deal he was working on – and also reauthorized the TAA program through 2022, but included “sunset” provisions.</p>
<h2>Rethinking trade adjustment assistance</h2>
<p>The TPP, which <a href="http://www.reuters.com/article/us-trade-tpp-idUSKCN0VD08S">was agreed to earlier this year by 12 Pacific Rim countries</a>, is aimed at reducing tariffs but, much more significantly, it would remove other national barriers to finance and investment as well as trade in goods, services and digital transactions. Among these changes are harmonization of national regulations and protection of intellectual property. </p>
<p>That agreement, which still requires ratification by the Senate, <a href="https://theconversation.com/can-free-trade-and-tpp-survive-rise-of-the-new-right-56241">is now on the rocks</a> after the populist candidacies of Trump and Sanders seized on anti-trade sentiment and gave it a powerful voice.</p>
<p>While this won’t save the TPP, rethinking how we assist those hurt by free trade is important so that at a minimum – once the anti-globalization views now ascendant have attenuated and the U.S. budget can accommodate increases in discretionary programs – future agreements don’t leave so many workers feeling left behind. Tinkering isn’t enough.</p>
<p>It starts with crafting policies that encourage a more flexible labor force, while at the same time providing a safety net for those who have to do the flexing. The Danes <a href="http://denmark.dk/en/society/welfare/flexicurity">have coined a word</a> for such policies: “flexicurity.” Rather than trying to protect jobs toppled by economist Joseph Schumpeter’s “<a href="http://www.econlib.org/library/Enc/CreativeDestruction.html">winds of creative destruction</a>,” government policies should ease and speed the transition to new and sturdier ones.</p>
<p>So in terms of the TAA, a crucial change would be to make training and other programs for the reemployment of displaced workers more effective and wage insurance for those who have found new jobs but at significantly lower salaries than the old ones more generous, in both amounts and duration. It is also critical to extend such measures to all workers displaced by change – such automation and changes in consumers’ tastes – not just trade.</p>
<p>Marketing will also have to play a role, from changing the name to delinking such provisions from political horse-trading over trade deals.</p>
<p>That way, perhaps government assistance for the losers from free trade could be thought of as something that lifts them up rather than puts them in the ground.</p><img src="https://counter.theconversation.com/content/67036/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marina v. N. Whitman is affiliated with National Bureau of Economic Research (trustee); Peterson Institute for International Economics (trustee emerita); American Academy of Arts and Sciences; Institute for Advanced Study (trustee emerita). </span></em></p>Trade adjustment assistance, dubbed ‘burial insurance’ by those it’s supposed to help, needs to be significantly reformed so that future trade deals don’t have so many workers feeling left behind.Marina v. N. Whitman, Professor of Business Administration and Public Policy, University of MichiganLicensed as Creative Commons – attribution, no derivatives.