The Promise and Perversity of Trade Adjustment Assistance: The Political Economy of Labour Compensation in the United States

Most industrialized and democratic polities have developed an array of policy measures that
serve to cushion the losers of international economic openness, usually broad social policy
provisions associated with the welfare state but also more targeted assistance to the losers of
openness. In the United States an important policy of the latter form is the Trade Adjustment
Assistance (TAA) programme, created in 1962 and revised and expanded – and in some
periods allowed to decay – ever since. The programme provides training, relocation and income assistance to the losers of trade. The programme has long been lauded as promising footholds to the development of more generous active labour market policy and assistance.

This paper, however, argues that two perversities in the politics of TAA systematically doom
the programme to cycles of boom and bust – limiting political support for expansion of
assistance and helping to give active labour market assistance a bad name. One problem is the
condition of agency slack, where the main group to benefit from TAA are categories of
import-competing workers whose union representatives have an interest in thwarting
adjustment out of declining sectors. Another problem is that imperfect substitutability
between trade adjustment assistance and trade protection, combined with the political linkage
between such assistance and liberalization, encourages strategic position-taking among voters
as well as policymakers: opposition to trade liberalization tends to weaken support for trade
adjustment assistance among individuals who, owing to their economic circumstances, stand
to gain the most from such assistance. These perversities yield a politics of TAA that
reintroduces and confines political support for adjustment assistance to explicit linkage with
trade legislation, and fosters an unwillingness to institutionalize and broaden the political and
policy reach of TAA. The paper supports these arguments with empirical support in the
history of lobbying and legislative bargaining over the U.S. Trade Adjustment Assistance
program since 1962, and in more extensive analysis of data on individual attitudes towards
trade adjustment assistance among American voters.