66 Pages Posted: 10 Apr 2019
Date Written: April 6, 2019
Since 1962, when Congress passed the Trade Expansion Act, every new U.S. trade deal has had the same essential bargain at its core. Congress agrees to give the president the power to lower trade barriers in exchange for adjustment assistance for those workers displaced by competition with new imports. This bargain illustrates what I refer to as the Misalignment Thesis: when a legislative bargain is struck over two or more interdependent policies, the policy subject to more frequent or costlier renegotiation and implementation will be disfavored in the long run. In the trade context, the misalignment occurs because trade liberalization commitments are indefinite, enshrined in international agreements, and implemented by the executive branch; the adjustment assistance provisions are temporary, purely domestic, and require renegotiation and reauthorization in Congress.
As a consequence, proponents of policies to help displaced workers must constantly renegotiate and defend laws to help their constituents. Moreover, they must do so within an institution, Congress, in which the transaction costs of securing favorable policy outcomes are very high. The result is that policies aimed at helping workers displaced by trade liberalization are chronically undersupplied.
Proponents of trade liberalization, on the other hand, never have to renegotiate their gains. Each trade agreement goes into the pocket of trade proponents, and then they move on to securing the next trade agreement. Nor does Congress maintain a meaningful role in the implementation of trade agreements. Once the agreement is in effect, implementation is left to the executive branch, where the transaction costs of enacting a trade liberalizing agenda are quite low.
This Article makes three contributions. First, it introduces the Misalignment Thesis in the context of U.S. trade policy. The Misalignment Thesis is a descriptive claim about how the structure of legislative bargains influences the long-term stability and effectiveness of that bargain. Second, the Article introduces the normative corollary to the Misalignment Thesis: if political stability hinges on respecting the legislative bargain, interdependent policies should be subject to renegotiation on the same time line and implementation on the same terms. In light of this prescription, I offer three concrete proposals for aligning trade liberalization and trade adjustment assistance in order to protect and promote the goals of both policies. Most importantly, I argue — contrary to most commentary — that the Trump Administration’s proposal to limit the duration of trade agreements like NAFTA would better align trade liberalization and trade adjustment assistance. Third, the Article discusses the Misalignment Thesis’s broader application to deregulatory bargains struck in a wide variety of fields, including transportation, telecommunications, and healthcare. The Misalignment Thesis suggests that deregulation often has unintended consequences because the structure of deregulatory bargains undermines their long-term effectiveness.
Keywords: international trade, adjustment assistance, legislation, treaties, inequality, labor
JEL Classification: K33, K40
Suggested Citation: Suggested Citation