The U.S. Trade Agenda: Comedy, Tragedy, or Thriller?

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The U.S. trade agenda, of late, has featured plot twists worthy of a summer blockbuster. After two years of neglect, the beleaguered agenda seemed poised to advance when the Obama administration reworked the free trade agreement with Korea, agreed on an Action Plan for moving ahead with Colombia, and pressed ahead with negotiations for a Trans-Pacific Partnership. It looked like the White House and congress could work together, the three pending FTAs (Panama, too) could pass this summer, and the trade agenda would be free of its partisan rut at last.

Not so fast. You can almost imagine Al Pacino, playing the role of The Trade Agenda, saying, "Just when I thought I was out... they pull me back in." In mid-May, the administration unveiled a new prerequisite for progress. Officials conditioned FTA submission on renewal of the expanded Trade Adjustment Assistance (TAA) program that had expired in February. And, thus, the agenda was thrown right back into impasse. For the last month there have been ongoing negotiations between congressional leaders and the White House to try and figure out a compromise. Despite steady rumors of an accord, none has yet emerged.

So how did Trade Adjustment Assistance, which has been around in one form or another for almost 50 years, become the centerpiece of the current trade debate? The rationale for the program is straightforward. While trade agreements help the country as a whole, they need not necessarily help everyone within a country. Why not arrange for winners to compensate losers so that everyone can be better off?

This is well-grounded in economic theory, but more difficult in practice. It is hard to tell whether a worker has lost her job to a trade agreement, to changing technology, to domestic competition, or to shifts in consumer tastes. Even if we could tell, is it fair to compensate workers displaced by FTAs, but not those who lose jobs to these other causes?

Fair or not, TAA became part of a compromise that supported trade liberalization for years. It was a modest program that had questionable success in helping displaced workers find new jobs, but it addressed enough qualms about trade liberalization to allow new deals to proceed. The current version of the program was passed in 2002 under President Bush.

Starting in 2007, though, things started to go wrong. Democrats took control of the House of Representatives and U.S. trade liberalization faltered. There were four pending FTAs at the time, but only one (Peru) passed through Congress. The others ended up in trade purgatory.

Then, in 2009, TAA was expanded as part of the stimulus bill. Benefits were expanded, coverage was broadened from just manufacturing to include service workers and government employees, and it was no longer necessary to be able to finger an FTA as causing the job loss; any trade would do. So, more compensation, without any new liberalization for which to compensate. This 2009 expanded version expired in February of this year and TAA reverted back to its reduced 2002 form.

The White House wants the big version back. Democrats are under strong political pressure to renew the TAA program from constituents who are already displeased about moving forward with the FTAs at all. The White House is thus left in an odd rhetorical position. It is simultaneously arguing that it has reworked the pending FTAs to fix their flaws, and that it is essential that billions be spent to protect workers from these FTAs. Those two arguments may not contradict, but it's a subtle point.

Republicans are conflicted, too. Beyond the arguments that the program is ineffective and has failed to buy much liberalization of late, there are several other counts in the indictment.

• The program is unaffordable at a time of alarming deficits.

• By only assisting workers who claim job losses due to trade, the program provides an incentive to exaggerate the negative job impact of trade.

• It is problematic to "buy" the FTAs with an expanded version of TAA, since those were already "purchased" as part of a May 10, 2007 deal. That accord promised votes on the four pending FTAs in exchange for new provisions on labor, the environment, and intellectual property. The Bush administration delivered the new provisions, but only the Peru FTA came up for a vote. Shouldn't a new concession buy something new, like improved prospects for future liberalization?

• The expanded TAA program was passed as part of the 2009 stimulus, which was sold as a temporary response to economic crisis. As such, the expansion was rushed through and escaped the scrutiny and debate it would have undergone had the process been more orderly. If such programs are treated as precedent and casually rolled over, that scrutiny will never come.

Where does this leave us now? The two extreme positions are to restore the 2009 stimulus version in full (White House) or to kill the program altogether (some Republicans). In between are at least two possibilities for compromise.

One would essentially split the difference. Dump some provisions from the 2009 version, scale back the cost, and bundle the remainder with the other stalled items on the trade agenda.

An alternative would be to rethink adjustment assistance altogether, broadening it out from a narrow trade focus to recognize it as a more general concern that demands attention. Two prominent economists recently put forward a bipartisan call for such a reworking. To forge a compromise, Republicans could decide that even in a time of scarce funds, facilitating worker adjustment is important; they could pre-commit to fund a new, innovative program at a significant level. Democrats, in turn, could abandon their attachment to the narrow trade linkage and the present, ineffective approach to assistance, opting for efficacy over ideology.

The time left for acting on the trade agenda before the summer recess is shrinking fast. Which will it be? Continued impasse? Split the difference? Or something new and more effective? Stay tuned. Truly a summer thriller for policy wonks.

American Enterprise Institute Resident Scholar Philip I. Levy has worked on international economic issues at the State Department and for the President's Council of Economic Advisers.  He also taught economics at Yale University. 

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