Photographer: Luke Sharrett/Bloomberg

Few U.S. Workers Receive Federal Assistance for Trade Deal Consequences

Congress has a (small) program for people affected by trade.

The Arkwright Advanced Coating plant in Fiskeville, R.I., let go 32 people in February 2015 after its Italian owner, Diatec, moved some operations to factories in Europe. When managers broke the news, there was a silver lining. After discovering a federal program called Trade Adjustment Assistance (TAA) online, the local union president applied to the U.S. Department of Labor. The plant opened up its books, and the government certified the job cuts as trade-related, which meant workers could apply for TAA relief.

That was good news for Kevin Tetreault, 41, who worked on the plant’s coating machines, big as basketball courts. He’s getting government grants to pay for an associate’s degree. When he’s finished, he’ll be certified to install and repair heating, ventilation, and air-conditioning systems. Tetreault now competes with his son to see who gets the best grades, but the decision to go back to school rather than take a lower-paying job wasn’t easy. “To be honest with you,” he says, “I debated I think until the last week before we had to sign off on everything.”

Tetreault was luckier than most workers in his position. TAA is a small program. In 2014, according to the Labor Department, 20.4 million American workers lost their jobs. Of those, 63,000 were eligible for TAA, which offers either retraining grants or small wage subsidies to make up the difference for those who take lower-paying work after their jobs vanish overseas. When TAA was last reauthorized, in June 2015, Congress approved a budget of just $450 million annually until 2021.

QuickTake Free-Trade Feud

Politicians often say the U.S. should retrain manufacturing workers who lose their jobs to foreign competitors. But TAA is all that Washington’s offered. As the volume of trade has grown, especially with China, the program’s shortcomings have become clear. It’s “vastly inadequate and improperly designed,” says Matthew Slaughter, a trade economist and dean of the Tuck School of Business at Dartmouth.

Introduced in 1962 as a complement to the Kennedy Round of tariff cuts, TAA was reduced dramatically under President Ronald Reagan. Until the 1990s, not much assistance was necessary. The U.S. was trading with other developed countries, where wages and labor regulations were roughly equivalent and job losses because of trade were actually less than economic models had predicted. Politicians in both parties were eager to pass trade deals. “Respectable opinion was rooting for trade not to have any negative effects of any serious size,” says Barney Frank, a Massachusetts Democrat who served in the House from 1980 to 2012.

That changed with the signing of the North American Free Trade Agreement in 1993, under President Bill Clinton. Nafta “was the first trade agreement we signed with a low-wage country,” says Robert Lawrence, a professor of international trade and investment at Harvard’s Kennedy School. Then, in 2001, China became a member of the World Trade Organization, vastly increasing the competitive pressure on low-wage U.S. manufacturing workers. “It is very different from the kind of trade competition you get when you have similar wages,” Lawrence says.

Economists have only recently begun to understand how trade with low-wage countries affects workers in wealthy ones. In a 2013 paper for the American Economic Review, economists David Autor, David Dorn, and Gordon Hanson found that in regions most affected by trade, the majority of federal assistance comes from increased Medicaid, Medicare, and Social Security disability payments. Transfers from TAA, they wrote, are “negligible.”

Kara Reynolds and John Palatucci of American University looked at data from the Labor Department in 2008; they found evidence that TAA helped workers find jobs after training, but the new jobs paid less. When industries move overseas, Reynolds says, “pockets of workers in the same geographic region” tend to be put out of work. As a result, the effects of trade-related job losses ripple through local economies—a problem TAA isn’t designed to fix.

TAA also does nothing for workers whose jobs evaporate for reasons other than trade. Until the late 1990s, one of the best-selling products at the plant where Tetreault worked was clear acetate pages for overhead projectors. Those have become obsolete. So while foreign competition played a role—Diatec sent Tetreault’s work to its plants in Germany and Switzerland—the brutal forward march of technology did, too.

In 2007, Slaughter and Lawrence contributed to a proposal to broaden TAA. Their goal was to expand wage insurance and retraining assistance for workers affected by technological change and other factors as well as trade. The cost: $22 billion. “What we really need is a broader adjustment system,” Lawrence says. Slaughter, who was then on President George W. Bush’s Council on Economic Advisers, invited Frank to Dartmouth to talk about it. Then, in 2008, the financial crisis struck, and both Frank and Slaughter had other things to worry about.

Democrats have lately been more concerned with setting limits on the terms of major trade deals, such as President Barack Obama’s Trans-Pacific Partnership, than on increasing funding for TAA and other assistance programs for U.S. workers who lose out. “Even the very best TAA program cannot make up for bad trade policy,” says Ohio Democratic Senator Sherrod Brown. He helped push last year's reauthorization through the Senate, though it passed at a lower level than he'd initially proposed.

This year, the conservative Heritage Foundation argued that TAA should be cut altogether. Some Republicans, however, see it as a valuable part of trade policy. “There is no question that trade is a big net positive for America,” says Washington Republican Representative David Reichert, who sponsored the 2015 TAA extension in the House. But “some workers may need a little help getting back on their feet.” He points to his own state: In February the Labor Department approved TAA requests for aluminum workers let go after Alcoa idled two smelters in Washington, a move the company attributed to competition from producers in other countries.

Presidential candidates have talked about trade—Bernie Sanders wants less of it, Hillary Clinton says she’ll seek tougher terms, and Donald Trump promises better deals. They’ve advocated training young people for jobs of the future but not about how to help those who’ve already lost their jobs.

Congress hasn’t indicated any plan to consider changing or expanding TAA. “I don’t mean to be the skunk in the garden party,” says Slaughter, “but I see nothing.” Addressing the effects of trade requires experimentation with various approaches at the state level, compromise at the national level, and plenty of time, Slaughter says. Instead, politicians are offering up the specter of increased barriers and trade wars, he says: “That’s really scary.”

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