Trade Adjustment Assistance

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.

A 2020 study found that counties with a history of successful petitions for trade adjustment assistance were less likely to support protectionism and were more likely to support Democratic candidates in the future.

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. 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."

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. 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.

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". 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.

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.

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%. 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. Similarly, Kletzer (2005) estimations suggest that industries facing high import competition account for 40% of manufacturing job losses. 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.

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. Furthermore, asymmetric information in absence of good job-search skills and geographic mismatch lead to prolonged unemployment. 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%.