Job losses are part of the lasting legacy of the North American Free Trade Agreement (NAFTA), and there are simply not enough changes to the newly negotiated U.S.–Mexico–Canada agreement (NAFTA 2.0, also known as USMCA) to change that reality. As Congress gets set to debate the ratification of this new agreement, it should take action to balance out the negative impacts by helping those unemployed families hurt by international trade through use of the Trade Adjustment Assistance program (TAA), as well as by growing jobs in communities impacted by ramped-up competitiveness.
A New Deal
These days, there are not many issues that leaders in both parties agree upon. One surprising exception is the need to renegotiate the 1994 North American Free Trade Agreement between the United States, Mexico, and Canada. The agreement was passed with promises that reduced barriers for trade would be good for all three countries, leading for example to increased demand for U.S. goods from a growing Mexican middle class that might result in a U.S. trade surplus from a fast growing Mexican economy. Instead, by 2010, NAFTA had been responsible for the loss of 700,000 jobs, primarily but not exclusively in manufacturing. NAFTA turned a small trade surplus with Mexico into a trade deficit of $79 billion.
Proponents argue that this trade deficit might be associated with lower prices for U.S. consumers and the development of well-integrated trilateral supply chains that support American jobs. However, the gains from liberalized international trade have not been equally shared across the United States. In those regions that were exposed to increased Mexican import competition due to NAFTA, wages decreased for not just blue collar workers in manufacturing, but also for service workers impacted by a diminished economy. The promise of NAFTA and other trade agreements—that they would create well paid, value-added jobs to replace those that were lost—was not fulfilled, especially in communities in the industrial midwest that had relied on good paying manufacturing jobs. By the 2016 presidential campaign, both major party candidates included a renegotiation of NAFTA in their campaign platforms.
Improving TAA does not mean that Congress is accepting the fact that there should be trade job losses: it’s just making sure there is a stronger response when they do occur.
On November 30, the United States, Mexico, and Canada signed on to terms for an agreement to replace NAFTA, known as the United States–Mexico–Canada Agreement, or USMCA. Yet the agreement’s fate in Congress—where the signing needs to be ratified, as well as by the Canadian and Mexican legislatures, before it can go into effect—and especially in the House, is uncertain. Key congressional leaders are unwilling to support the renegotiated deal, including Representative Marcy Kaptur of Ohio, a leader among midwest Democrats who warned against the president declaring a premature victory on the new deal. The International Association of Machinists, a major manufacturing union, also announced that they could not support the agreement in its current form. What these unions and their congressional allies are looking for is a reformed NAFTA that can ensure decent working conditions across all three countries, and enforcement mechanisms with consequences for companies and countries that do not abide by them. Progressive champions like Senator Elizabeth Warren (D-MA) have demanded that terms on labor and other key issues like drug prices be renegotiated before the new agreement comes to a vote in Congress.
A common refrain among labor leaders is that the new deal was incomplete or “not done,” rather than being dead-on-arrival in a new Democratic-led House of Representatives. The newly proposed USMCA includes a number of improvements for American labor. The draft agreement would require 40 percent of cars and 45 percent of light trucks freely traded under NAFTA to be produced by workers earning more than $16 an hour, cutting off outsourcing to Mexico and other low-cost countries. The USMCA also includes stronger rules against goods produced through forced labor, and an elimination of rules that exempted Mexican trucks from key U.S. safety rules. Moreover, the text eliminates the controversial investor–state dispute settlement rules that allowed companies to sue against environmental and other consumer protections considered barriers to trade. There was enough positive movement in the signed text that Lori Wallach, of the advocacy organization and think tank Public Citizen and a long-time progressive trade activist, declared after the midterm election that there is a path to creating a final USMCA package that could achieve broad support.
New Congress, New Opportunities
It’s no surprise that after reclaiming power in the House, congressional Democrats are demanding a strong reform of labor standards and other key provisions. They have unique leverage to pressure a presidential administration that has pledged to protect American manufacturing jobs, and is smarting from the decision by General Motors to layoff thousands of U.S. workers. In negotiating the best deal for the communities they represent, congressional leaders shouldn’t stop at winning strong, enforceable labor protections like the requirement for Mexico to pass labor law reforms that protect independent labor organizers. Even with such rules, multinational manufacturing companies will continue to move production to Mexico in search of lower wages as part of cost-efficient, tariff-free, North American supply chains. That’s especially true as the Tax Cuts and Jobs Acts of 2017, championed by the current administration and the nearly-formerly Republican-controlled Congress, allows companies to get as much as a 50 percent discount on profits earned overseas, through the act’s Global Intangible Low-Taxed Income (GILTI) rules.
To blunt these impacts, Congress can pair a new NAFTA with complementary policies. First, the new NAFTA legislation should do a better job than the first one when it comes to helping those workers and communities who lose jobs as a result of liberalized trade rules. Second, it should bolster the competitiveness of U.S. manufacturing that can lead a high-tech “North American manufacturing powerhouse” to create high-wage jobs in communities in the midwest and across the country. While so-called fast track rules for trade agreements bar Congress from amending the details of trade agreements, there’s strong precedent for congressional leaders to arrange a piece of companion legislation to go alongside the new NAFTA.
How Trade Adjustment Assistance Can Help
Since the 1970s, Congress has looked to the Trade Adjustment Assistance program to help trade-impacted workers get back on their feet and into new jobs. Indeed, the original NAFTA bill expanded TAA to include both those directly impacted by offshoring of jobs as well as those who work for their suppliers. The NAFTA–TAA law and subsequent reforms have created one of the more robust sets of services available to unemployed workers in the United States, including up to two years of extended unemployment benefits and paid tuition for up to two years in retraining programs. This kind of support can allow laid off workers to make big career changes, such as moving from factory work to becoming a nurse. Research shows that those TAA recipients who find jobs in the field for which they have trained receive a $5,000 to $6,000 earning boost.
The nation needs a set of adjustment and competitiveness policies around the new agreement to make sure it’s truly a fair deal for workers and communities.
Despite these successes, TAA has too often felt like a failed promise to workers and communities. In order to be eligible, groups of workers impacted by a mass layoff have to petition the U.S. Department of Labor for eligibility—leading to long delays in services and many workers missing out on help. One analysis found that 1.5 million jobs were lost to trade from 2002 to 2007, but only 1 million of those jobs were certified for TAA. Moreover, a rigorous evaluation found that only 37 percent of TAA training completers were able to find employment in occupations they trained for.
The current TAA program needs to be reauthorized by 2021, and its health care tax credit programs by 2019. The TAA program has the right ingredients to succeed, if Congress could make some important changes. And improving TAA does not mean that Congress is accepting the fact that there should be trade job losses: it’s just making sure there is a stronger response when they do occur. Put simply, even if TAA is merely a band-aid for the pain of globalization, it should be one that sticks. And, the USMCA gives Congress additional leverage to reform and reauthorize the program alongside a new trade agreement that will be with us for as long as sixteen years. Absent pairing TAA with USMCA, there may not be another good policy opportunity to improve an extremely important program.
Here’s what needs to change for TAA to offer the best relief it can:
- TAA benefits should be structured to give recipients enough time to complete a meaningful training course. That would mean additional time for recipients who need to complete remedial training before entering occupational or classroom training, and returning the program to its 2009 level of providing a full two years of benefits to complete a community college level training course. And, TAA should help workers with child care and other supportive services that make it possible to stay the course in retraining through to completion.
- TAA needs to do a better job at helping its recipients complete training programs with strong employment and earnings outcomes. Reformed rules could require greater accountability for states and training providers, and encourage community colleges and other TAA providers to build stronger relationships with employers. Changes could make it easier for TAA recipients to enter into apprenticeships or other work-based learning programs, by allowing TAA to pay for related instruction and continue subsidizing living expenses. (Currently, TAA recipients working as apprentices lose access to weekly TAA benefit payments).
- TAA should not take a one-size-fits-all approach to its recipients. For those who are not interested in or inclined toward training, the program should build on successful reemployment services interventions with unemployment insurance claimants that provide in person job search assistance. But, trade related job losses hit communities hard, making it harder to find work. Even those workers who don’t go into training classes are likely to need extra time to find work, and should have access to some of TAA’s package of extended unemployment benefits and wage insurance. These benefits are proven to help these workers keep food on the table, maintain their housing, and preserve their hard earned savings.
- Congress should reauthorize the health care tax credit provisions that helps workers with 70 percent of the cost of premiums to continue their pre-layoff insurance, allowing laid off families continued access to their doctors and caregivers. In 2016 alone, this targeted program helped nearly 30,000 Americans access nearly $50 million dollars in premium assistance.
- Congress should consider ways to move eligibility away from the cumbersome petition process, through which a laid off worker becomes certified for TAA relief as a member of certified trade-impacted mass layoff event. The program could move to individual level eligibility based on the impact of trade on the industry from which a worker was separated, and/or by requiring companies to notify government when they are moving production overseas as part of a large layoff through a required WARN notice. Moreover, to encourage more real world experience with new ideas around eligibility and services, Congress could provide the Department of Labor with provisions and resources for pilots and demonstrations in selected states that could become part of the national program.
Another reason for the struggles of the TAA program is that it primarily focuses on individual workers (and, to a lesser extent, companies and farmers), but retraining and reemployment services only work if there are good jobs and vibrant communities. While trade has caused job losses in certain services (like call centers), the bulk of the impact has been and will continue to be in communities that rely on manufacturing (especially those in the midwest and southeast).
Investing in the Future Economy—While Protecting American Workers
Especially in light of the continuation of NAFTA, the future of manufacturing in the United States lies in high-value added, advanced manufacturing industries that can command living wages, not low-paid work that can be done in developing countries like Mexico. Germany is proof positive that even in a globalized world with lowered trade barriers, high-wage nations can maintain a strong manufacturing core. Doing so requires an active innovation policy, including sectoral partnerships bolstering competitive clusters in different manufacturing specialties, extension services that help small businesses become high-tech and high-productivity, and research efforts linking, for example, universities and manufacturing companies to invent and produce cutting edge products and materials in the United States. The Trump administration has endorsed this kind of advanced manufacturing strategy, and a NAFTA legislative package could be a chance to finally tie together programs like Manufacturing USA and the Manufacturing Communities Program into a national industrial policy that helps communities that depend the most on good paying manufacturing jobs.
There’s precedent for this approach. The Omnibus Trade and Competitiveness Act of 1988, which gave presidents the authority to negotiate agreements like NAFTA, also included a strong set of technology policies in it. A twenty-first-century package would include both policies around technologies and those that help regions disadvantaged by trade redevelop their local economies, such as proposals like Senator Bob Casey Jr. (D-PA)’s Community Economic Assistance Act and the POWER initiative developed by the Obama administration, which targeted coal communities.
To date, the discussion about NAFTA 2.0 has focused on how to improve the trade deal itself, thereby putting U.S. workers in the best competitive position. But, that’s not far enough: the nation needs a set of adjustment and competitiveness policies around the new agreement to make sure it’s truly a fair deal for workers and communities.
PHOTO: Chicago, USA – May 21, 2016: Derelict Chicago industrial building, half demolished. McKinley Park community area, Southwest Side.