When It Comes to Globalization, Listen to the American People
by Howard F. Rosen, Peterson Institute for International Economics
Article in Foreign Policy
April 18, 2011
© Foreign Policy
The majority of Americans favor globalization—so long as the government assists those workers, firms, and communities adversely affected by it. It is therefore ironic that at the same time members of Congress were pressuring Barack Obama's administration to complete free trade agreements with Colombia and South Korea, they allowed Trade Adjustment Assistance (TAA)—a program that provides assistance to workers, firms, and communities hurt by increased foreign competition and outsourcing—to terminate earlier this year.
Over the last several weeks, the administration has successfully renegotiated the agreements with Korea and Colombia, and it is trying to resolve remaining issues related to an agreement with Panama. Once Congress approves these agreements, the administration can turn its attention to establishing the Trans-Pacific Partnership (TPP)—a trade and investment agreement with several Asian and Latin American countries.
These agreements enable American firms to expand their exports and provide American consumers access to cheaper, and in some cases, higher-quality products. Although the benefits might outweigh the costs of these agreements, increased import competition and outsourcing may result in job losses at home, placing pressure on American workers who are already trying to recover from the greatest economic downturn in more than 75 years.
Since President John F. Kennedy called for its creation 50 years ago, TAA has been reformed and updated several times in order to keep up with developments in international trade and investment. Before expiring this year, the program provided income supplements, training, and other re-employment assistance to all manufacturing and service workers hurt by import competition and outsourcing. As opposed to unemployment insurance, which is primarily financed by the states, TAA is financed by the federal government and thus reduces pressure on already fiscally strapped state budgets.
Over the years, reforms in the program have made it easier for eligible workers to find new jobs and for firms to receive technical assistance in order to avoid additional mass layoffs. In 2009, Congress expanded TAA eligibility to include all manufacturing and service workers who lose their jobs due to import competition and outsourcing, and reformed the assistance provided to workers in order to keep the program relevant, given developments in trade and investment. For example, more American workers currently lose their jobs due to outsourcing than due to import competition. The updated TAA for Firms program saved companies from closing; in fact, many of these firms have become exporters, helping to meet Obama's goal of doubling US exports in five years.
But Congress did not act to renew TAA earlier this year when its five-year legislative authorization automatically expired. Nor did Congress extend the 2009 reforms to eligibility criteria and assistance when they automatically expired at the beginning of 2011. Failure to act immediately reduced assistance to tens of thousands of American workers and made even more workers ineligible for the program.
TAA expiration and the termination of recent reforms couldn't come at a worse time. Although total US employment is increasing and the unemployment rate is falling, the number of American workers looking for work and the average duration of unemployment continue to rise. These indicators suggest that much of the remaining unemployment is due to structural, not cyclical factors, meaning that the jobless will need to retrain, relocate, or switch industries before they'll find work. This is quite a challenge for workers, not least because it often means finding jobs in new occupations that often pay less than their previous jobs. In addition to requiring workers to enroll in training, TAA was the only program that provided assistance to help offset earnings losses and enabled workers to keep their health insurance. The US Labor Department reports that more than half of workers "graduating" from TAA find jobs, and most remain at those jobs for at least a year.
The Obama administration is unlikely to seek final approval of the free trade agreements with Colombia and South Korea until Congress agrees to reauthorize TAA. The question is, which TAA—the out-of-date version or the expanded, more relevant one?
TAA's entire budget in 2010 was less than $1 billion. The cost of reinstating the modernized program is so small it will hardly show up in the government's budget. Congress needs to act quickly to restore TAA—complete with all the 2009 reforms—in order to maintain public support as it considers any new trade agreements.