China should demand that the US compensate American workers hurt by trade

The United States and China are in the midst of negotiating a trade deal, and the talks may finally be getting somewhere. The Trump administration has repeated that it won’t settle for a deal that is unfair to American workers. But the last decade has shown that China also loses when American workers exposed to trade competition are harmed. That’s because those aggrieved workers push for tariffs, which in turn hurt Chinese exporters.

This has a surprising implication: China should take the U.S. at its word and be the first to insist that the U.S. compensate American workers negatively affected by trade. 

The U.S. already has a program designed to do this, called Trade Adjustment Assistance (TAA). Despite being an unloved political compromise – most Democrats would like to expand it, while most Republicans consider it ineffective – TAA has proven successful at its task. Eligible workers get training, subsidized incomes and medical and relocation assistance. Those workers who get on TAA end up earning $50,000 more in the decade following a job loss than those who don’t. During that period, they are also less likely to require other types of government assistance, like medical benefits. 

TAA exists in recognition of the fact that trade deals may benefit the U.S. as a whole, especially by lowering prices for all consumers, but some workers are left behind in the process. Of course, the knowledge that the total gains exceed the total losses is cold comfort to factory workers in Ohio or Pennsylvania who have lost their jobs to foreign competition. TAA is designed with these workers in mind. It aims to redistribute the widespread gains from trade to those hurt by globalization. 

This year’s Nobel Prize winners in economics, Esther Duflo and Abhijit Banerjee, have just called on an expansion of TAA into a GI Bill of sorts for the veterans of economic disruptions. They have suggested that TAA cover full tuition at public universities for those harmed by trade competition.

This would be a good idea, but TAA’s underfunding is not its only issue. Workers need to apply to obtain TAA support. And because the certification process is notoriously complicated, many eligible workers never do.

Here is why China should care: In a study released this week, we show that when American workers get too little trade compensation, they demand more trade barriers. The two work as substitutes: Less trade adjustment means more barriers on imports from the likes of China. This means that China actually has a stake in how the U.S. handles the needs of American workers hit by economic disruption. That’s because economic distress, if left unaddressed, gets exported abroad as protectionism. 

One idea would be to link worker compensation with the trade remedies that the U.S. prizes, and that China fears. These are policy tools, like anti-dumping, that the U.S. uses to protect an American industry by raising barriers on trade partners. The U.S.-China deal should require that any country making use of remedies like anti-dumping also set money aside for the workers in that industry. So when the U.S. raises tariffs on steel, it should also create a reserve fund for U.S. steel workers hurt by imports. This would render TAA disbursements more automatic, making it more likely that the workers who need it get compensation.

Compensating workers left behind by trade competition through programs like the TAA has always been viewed as a national issue. Each country goes about it the way it chooses. But the last decade has shown that the fate of those left behind by trade is everyone’s concern. When American workers are doing worse, they demand action, and that takes the form of tariffs, which hurt everyone.  

Krzysztof Pelc is an associate professor in the department of political science at McGill University in Canada.