Don’t Abandon Trade, Mr. President – Modernize Economic Adjustment Assistance

The post-World War II global trading system – one of the most successful cooperative frameworks in human history – appears to have come to an abrupt and spectacular end in the White House Rose Garden on April 2nd.  Holding a display board listing nations and various percentages, President Trump announced that the Administration would impose a 10 percent baseline tax on imports from all countries, and slap additional tariffs ranging from 11 to 50 percent on dozens of nations that run trade surpluses with the United States.

The announcement infuriated economic allies and sent global financial markets reeling.  The Dow Jones Industrial Average fell 1,680 points the day after the announcement, and another 2,231 points the following day, erasing $6.6 trillion in market capitalization – the largest two-day destruction of shareholder value ever recorded.  Even more ominously, the announcement marks a stark break from 80 years of U.S. economic policy, which since World War II has championed a global system of freer trade based on comparative advantages among nations.

Most fundamentally and tragically, President Trump’s tariff policy – described by Jeremy Siegel, professor at the University of Pennsylvania’s Wharton School, as “the biggest policy mistake in 95 years” – is a missed opportunity to make one of the most powerful engines of economic progress work even better for every American.  Policymakers could have – and should have – acted years ago.

The president’s disdain for trade is well known and not new.  For decades, he has regarded the global trading system as a scam by which the rest of the world “rips off” the United States.  The president is badly mistaken. The United States designed and built the post-war trading system, and no nation has benefitted more.  Construction of the rules-based system of cross-border commerce set off an explosion in trade, which fueled an exponential increase in global economic output and the greatest reduction in global poverty in the history of the world.  Trade liberalization has added more than $1 trillion to U.S. national income every year – about $10,000 per American household – created jobs for millions of Americans, and raised the purchasing power of the American middle class by a third.

But by imposing tariffs, the President has responded, however crudely and destructively, to an important reality that both Republican and Democratic policymakers have ignored for decades – namely, that while liberalized global trade has been a tremendous boon to the U.S. economy in aggregate, trade-related gains have not been evenly distributed.  Quite the contrary, as resources, capital, and production are reallocated globally to reflect the comparative economic advantages of trading partners, painful losses can and do occur.  Certain businesses have been disrupted or forced to downsize, wages in certain industries have been reduced in order to remain competitive, and certain jobs have been relocated.

Polling over the years has captured the public’s reaction to this reality.  In 2010, a Wall Street Journal/NBC poll found that the percentage of respondents who thought that free trade agreements “have helped the United States” fell to just 17 percent, down from 39 percent in 1999, while the percentage responding that free trade agreements “have hurt the United States” had increased to 53 percent from 30 percent.

More recent surveys, however, have found that support for free trade has actually improved, especially since President Trump imposed certain tariffs in his first Administration.  According to a Cato Institute poll released in August of 2024, nearly two-thirds of Americans favor increased trade with other nations, while 75 percent worry that tariffs raise consumer prices.  Repeated research makes clear that the aggregate gains delivered by trade far exceed the associated costs.  Nevertheless, because the trade-related anxieties felt by many Americans are genuine and understandable, preserving the consensus for freer trade and its broader economic benefits requires a specific and effective policy response.

As a significant step toward that objective, we propose combining the antiquated Unemployment Insurance (UI) and Trade Adjustment Assistance (TAA) programs into a new, integrated, and significantly expanded Economic Adjustment Assistance (EAA) program.  The new EAA would offer American workers who have been displaced for any reason – trade-related or otherwise – a flexible 21st century menu of short-term assistance options.

UI was created as part of the Social Security Act of 1935 and has not been significantly modified since then.  UI benefits are intended to reduce the hardship of involuntary unemployment, help maintain the purchasing power of the unemployed, and preserve the local workforce so that workers are available when employers are ready to rehire.  In effect, UI was designed to support an unemployed worker until he or she is rehired by the previous employer or a similar employer.  But the challenges that confront unemployed workers today are much more complex, and can include finding a new employer, often in a new field or industry; upgrading or adding to existing skills; learning altogether new skills; and coping with lost earnings and benefits, especially healthcare.

TAA, created as part of the Trade Expansion Act of 1962 and further defined as part of the Trade Act of 1974, was designed to supplement UI by providing assistance to workers displaced specifically by competition from imports.  But rather than facing one-time adjustments to isolated increases in import competition, firms and workers today face continuous adjustment challenges due to an ever-changing competitive landscape.  The 21st century U.S. economy is in a constant state of change, as a combination of technological advancement, innovation of various kinds, demographic changes, economic cycles, changing consumer tastes, and governmental policies continuously impact the economic prospects, job security, and earnings of America workers in ways much more powerful than trade.  Moreover, the principal assistance provided through TAA is training within the affected worker’s current field, rather than a broad array of more tailored options responding to the specific challenges confronting a particular displaced worker.

As currently structured and administered, UI and TAA are relics of an economy that no longer exists and, therefore, are insufficient to meet the varied adjustment needs of a 21st century, globally engaged American workforce.  Given the array of forces that affect their jobs, economic prospects, earnings, and living standards, American workers need and deserve a broader and more flexible framework of adjustment assistance comprised of a la carte options designed to provide the optionality necessary to meet the varied needs of displaced workers in a highly innovative, ever-changing U.S. economy.

Some displaced workers need to upgrade their skills within their current field.  Others need new skills to leave a shrinking field and jump to an expanding field.  Some need help with relocation expenses to take a new job in a different city.  Still others might decide to start their own business and need access to start-up capital.

A modern EAA program could also include other innovative features such as wage-loss insurance to ease the transition for older workers forced to take lower-paying jobs, continued health insurance coverage while workers remain eligible for EAA, and, potentially, allowing workers in transition to access tax-advantaged savings and investment accounts, like IRAs and 401(k)s, without incurring standard penalties.

Twenty-first century economic adjustment assistance that works, meets the specific needs of displaced workers, and provides a credible pathway back to gainful employment in a growing and dynamic global economy will address in a positive way the trade-related anxiety that millions of Americans experience.  Just as important, it will help preserve the national consensus for global engagement policies like freer trade that offer American households, businesses, and workers such significant economic gains.

Robert Litan is an economist and attorney, and the former director of economic research at the Brookings Institution, the Kauffman Foundation, and Bloomberg Government.  John Dearie is the president of the Center for American Entrepreneurship.