When Protectionists Meet Welfare Kings

Yesterday the House Ways and Means Committee approved by a margin of 26-14 a bill (H.R. 3920) to expand and extend (until 2012) the Trade Adjustment Assistance Program, which provides extra welfare and training to workers who lose their jobs as a consequence of import competition or outsourcing. The new bill would expand trade adjustment assistance to cover more workers beside those who work in the manufacturing industry, including service employees, who currently cannot get benefits under TAA if their jobs are moved overseas. It also increases the benefits and training available to trade-displaced workers, and the "incentives" for states to increase unemployment insurance coverage. It is still unclear just when this bill will face the full House, or what any alternatives will be.

I have a trade briefing paper, forthcoming soon, on this topic and I wrote an op-ed yesterday, arguing that TAA should be cancelled rather than extended. Here's why: first, fewer than 1 in 30 unemployed people can point to import competition or outsourcing as the reason for their unemployment. Changes in consumers' tastes, changes in technology and increasing productivity is far more likely to be a cause of unemployment (more from my colleague Dan Griswold here). So TAA is yet another example of special interests receiving special treatment.

Second, while TAA for workers cost a "mere" $800 million or so in 2006, we can expect that cost to rise as more workers are included (more than 80 percent of American workers work in the services sectors, although many of those are non-tradeable) and Congress sees fit to spend more of your money on wage insurance, training and the like.

Third, although hints have been made that the preferential trade agreement with Peru is predicated on passage of TAA extention, the historical bargain between free-trade advocates and workers--that any trade liberalization would be accompanied by extra welfare benefits for those who lose their jobs-- is no longer certain. For sure the bilateral deal with the most to offer economically, that with South Korea, looks all but doomed.

The moral case for TAA is dubious at best. A lack of prospects for commercially meaningful trade liberalization tips the balance.