Trade Adjustment Assistance Policy in the US

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Introduction

The evolution of technology enables more advanced means of communication and transportation, strengthening the trade relations between nations. Easier international trade has its advantages on the macroeconomic scale, as it ensures a stable supply of products and services capable of meeting the growing demand of the public. Consequently, countries are able to focus on the areas in which each one has an absolute advantage while compensating for other segments with imports. Nevertheless, while an active import of goods may have positive sides globally, its microeconomic aspect reveals some issues.

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First of all, the aforementioned focus on the absolute advantage leaves other sectors of a country’s economy without support. As a result, industries face additional pressure from abroad, which leads to enterprises being closed and their workers losing their jobs. In order to compensate for the losses sustained due to globalization, nations devise specific plans to support their firms. The purpose of this paper is to review the Trade Adjustment Assistance policy implemented by the United States of America in order to support individuals and companies damaged by the increasing levels of imports.

Background

Today’s global economy sees a constant increase in international trade, which is a multifaceted process, having its advantages and downsides. Rapid technological development in the 21st century has become the primary enabler of the profound economic integration of countries. This approach to trade can be highly beneficial for both developed and emerging economies due to the opportunities it creates.

The notion of absolute advantage refers to the relative utilization of resources by each player within the same market (Potters, 2021). Table 1 shows a typical simplified case of determining an absolute advantage. In the presented scenario, the industry of the United States demonstrates a more efficient performance in the production of electronics, requiring fewer resources per unit. Simultaneously, Germany shows better results in the automobile manufacturing sectors.

Table 1. Absolute Advantage.

USA Germany
Cost per unit for electronics 50 70
Cost per unit for automobiles 80 60

Within the simplified two-country and two-product paradigm, the U.S. will have an absolute advantage in electronics, while Germany will prevail in the automobile industry. As a result, it would be beneficial for each nation to focus on the sector in which it has the advantage while importing the other product to meet the demand. Therefore, while the presented model is simplified, it provides a general understanding of the underlying economic processes behind globalization-conditioned import. In the actual environment in which multiple countries and products are involved, most players continue to follow similar principles, pursuing the path of the most efficient resource utilization.

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According to Nguyen and Nguyen (2019), countries utilize the opportunities of global trade in terms of export, which pushes many of them toward heavy import dependence. In order to have a healthy economy, it is vital to maintain proper market equilibrium between supply and demand. Even if a nation does not specialize in some product, its population may still require it, making import an indispensable component of this country’s economy.

On the other hand, while the model of absolute advantage provides insight into the complex nature of global trade relations, it does not consider some factors. In an ideal situation described in Table 1, both countries should concentrate their limited workforce and production capabilities on the product, in which they have an advantage. Therefore, in the United States, workers and enterprises engaged in the automobile industry will be reoriented toward electronics, producing larger amounts of goods in a shorter period at a smaller cost. However, in the actual situation, resources, especially human ones, cannot be fully transferrable.

Some workers may lack the qualification or motivation to continue in the other sector. For example, if a person’s education and experience are centered around the production of vehicles, they will have relevant skills for the high-tech industry. Companies are in a similar position, as their supply chains and internal organization network may not be easily adjusted to the new reality of the market. Accordingly, in the presented scenario, many American firms from the automobile industry will have to go bankrupt, while their workers will lose their jobs.

Legislative History

In order to compensate for the losses of firms and individuals described above, governments seek effective solutions, which will keep their economies healthy. Globalization of economic processes is not a completely recent concept, as it was well established by the middle of the 20th century. In the case of the United States, the rise of imports and its detrimental impact on specific industries are reflected in the Trade Adjustment Assistance (TAA) policy. As stated by Guth and Lee (2017), the first version of the program was introduced in 1962 with the Trade Expansion Act. As a matter of fact, the perceived workforce displacement, which was caused by the import increase, entailed a certain degree of domestic resistance.

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Individuals and enterprises who observed the impact of global trade on their particular industries stood against the process, which is why the government felt the need to provide them with assistance. However, Guth and Lee (2017) write that the program’s eligibility criteria were too strict over the first decade, which is why the TAA could not encompass the desired amount of workers. In order to increase the effectiveness of the policy, the U.S. government revised the eligibility criteria in the Trade Act of 1974 (Guth & Lee, 2017). Over the course of its existence, the nature of the TAA has been justified by the broad socioeconomic context.

For example, in 1979-80, the oil price shock led to a dramatic decrease in demand in the segment of large American automobiles. The industry had to compensate for the shift in the market equilibrium, and thousands of workers became unemployed, applying for TAA assistance (Guth & Lee, 2017). This era provided the country’s policy-makers with valuable insight in regards to the program’s effectiveness. As a result, the TAA was reoriented from direct financial support to retraining and job search assistance.

Following the change of paradigm, the TAA obtained an updated set of policies and requirements. According to Guth and Lee (2017), the alterations were actually conditioned by the growing cost of the program, which alarmed the policy-makers. The government did not want the TAA to become a mere source of income for the newly unemployed, as it would contradict the very nature of the policy.

This program has always been viewed in the context of economic revitalization, which would enable a transfer of production capabilities from one sector to another, allowing the U.S. to maintain its absolute advantage in trade. In this regard, the further version of the TAA focused heavily on retraining programs, making them an obligatory requirement for financial support (Guth & Lee, 2017). As for its recent history, the global economic crisis of 2008-09 once again rekindled the interest of policy-makers and the public. In 2015, the latest edition of the policy was enacted by the TAA Reauthorization Act. The current concept of the program takes into account the global economic processes of the 21st century, as well as the prior experience of its predecessors.

Concept

As established prior, the TAA has undergone major changes throughout its half-a-century-long history. Nevertheless, its main concept and orientation have been preserved intact since 1962. The purpose of the TAA is to negate the impact of global economic processes, namely rising import, on the domestic enterprises and local workers of the United States (U.S. Department of Labor, n.d.). It is expected to be beneficial for both the country and the recipients.

For the latter, the program offers substantial financial support, allowing them to overcome the consequences of losing their jobs. Hyman (2018) reports “$50,000 greater cumulative earnings ten years out” among TAA-eligible workers, while adding that training became a more important factor of financial security mong them (p. 1). The TAA enables a transition of specialists from one sector to another through government-funded retraining and reorientation programs.

The reemployment of people affected by the import increase is a vital element of preserving the health of the national economy. Within the model of absolute advantage described earlier, a lack of such reorientation would result in a highly unfortunate situation. If the product without an absolute advantage is to be imported, its domestic production will become economically inefficient, leading to considerable reductions in the sphere. Accordingly, the country will rely on the increased supply of the other products, which will not be provided without proper training for workers from the damaged industry. The concept of the TAA acknowledges such risks, laying additional emphasis on reemployment rather than direct provision of funds (U.S. Department of Labor, n.d.). This way, the economy of the country is expected to be able to focus on the most advantageous spheres while having a stable supply of qualified workforce.

Application

Individuals

As can be inferred from the previous findings, individual workers losing their jobs in the fallout of global economic developments form the core of the TAA’s mission. Generally, in order to apply for the program, a group of two or more employees of the same firm is to file a special petition with the U.S Department of Labor’s (n.d.) TAA Program. The Office of Trade Adjustment Assistance reviews each request, determining whether a petition, indeed, meets the eligibility criteria of the policy.

Once a positive assessment is provided, the group of workers receives the eligibility certification, making them entitled to the TAA benefits. Subsequently, the Department of Labor issues due allowances for all participants of the program on condition that they engage in the retraining programs offered by the government (U.S. Department of Labor, n.d.). The payment consists of the basic, additional, and completion allowances provided upon passing a corresponding stage of the program. Overall, the TAA has covered over five million participants over its history, and their distribution is presented in Figure 1 (Guth & Lee, 2017). It becomes evident that the program became particularly valuable during periods of a global recession, aggravating the impact of aggressive import.

The number of the TAA Program Participants
Figure 1. The number of the TAA Program Participants (Guth & Lee, 2017).

Companies

Aside from individual workers, the TAA also encompasses enterprises, which were affected by the surge in importing activities in the United States. The current Trade Adjustment for Firms program was implemented by U.S. Congress in 2011, as a logical development of the existing TAA initiatives (“Benefits,” n.d.). It functions upon a similar basis of pointed financial support for companies, the operations of which were influenced by import in their segments. The TAA covers 50% of the investment for the new projects of eligible firms while allowing them to enjoy 100% of the returns. Due to the program, companies are able to maintain competition with fewer expenses, thus optimizing their use of resources.

The official TAA website provides a range of success stories of enterprises, which managed to overcome the crises. For example, a small food flavoring firm, suffering from intense international competition, utilized the program funds to develop a unique selection of products, tripling its profits in the mid-term (“Results,” n.d.). In fact, it can be concluded that companies are expected to demonstrate a certain degree of economic expertise in order to utilize the TAA funds effectively and gain positive results.

Summary and Conclusion

Overall, globalization is conditioned by the rapid technological process, and it continuously increases competition across industries and markets. In order to maximize the profits from trade, countries willingly concentrate their resources on the areas in which they have absolute advantages. However, the transfer of workforce and resources from non-prioritized industries faces major impediments, such as the lack of training and relevant experience, impairing the functioning of the economy.

As a result, nations devise particular programs, which help people and companies overcome the negative impact of import in their sectors, as well as maintain market equilibrium. The U.S. Department of Labor offers the Trade Adjustment Assistance program. While the policy is related to financial support, it is aimed at the professional development and reemployment of workers. At the same time, the TAA is applied to firms as well, helping them regain their market positions. In both cases, the program extends beyond basic financial support, as it aims at more profound aspects, helping revitalize the economy of the country.

References

Benefits. (n.d.). Trade Adjustment Assistance for Firms. Web.

Guth, J., & Lee, J. (2017). A brief history of the U.S. trade adjustment assistance program for workers. USITC Executive Briefings on Trade. Web.

Nguyen, H. T., & Nguyen, M. N. (2019). Comparative analysis of advantages and disadvantages of the modes of entering the international market. International Journal of Advanced Research in Engineering& Management, 5(7), 29–36.

Potters, C. (2021). Absolute advantage. Investopedia. Web.

Results. (n.d.). Trade Adjustment Assistance for Firms. Web.

U.S. Department of Labor. (n.d.). Trade act programs. Web.

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DemoEssays. "Trade Adjustment Assistance Policy in the US." August 6, 2022. https://demoessays.com/trade-adjustment-assistance-policy-in-the-us/.