![handle is hein.tera/crser0166 and id is 1 raw text is: Order Code RS20210
Updated April 2, 2002
Trade Adjustment Assistance for Firms:
Economic, Program, and Policy Issues
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
While many policymakers believe that free trade provides benefits to all trading
partners, reducing barriers to trade forces firms and industries in all countries to adjust
to stiffer global competition. For some, the adjustment process can be difficult and
Congress, in recognizing this problem, has authorized programs to assist trade-impacted
firms, industries, and workers. This report focuses on the trade adjustment assistance
program for firms and industries, which provides technical assistance to help them
develop strategies to remain competitive in the changing international economy.1
Although a small program, it remains controversial. The TAA legislation expired on
January 10, 2002, but the programs are functioning with FY2002 appropriations pending
congressional action on reauthorization. This report will be updated periodically.
Economics of Trade Adjustment
Economists tend to agree that in defining the rules of exchange among countries,
freer trade is preferable to protectionism. The theory of comparative advantage suggests
that freer trade leads to mutual gains for countries because through exchange, they can
specialize in producing those goods at which they are relatively more efficient, while
trading for those at which they are relatively less so. Firm productivity increases through
trade by reallocating resources to their more efficient use, while both firms and consumers
gain by having a wider variety of goods to choose from at lower prices.
It is also true that as countries adopt freer trade policies, often through negotiated
trade agreements, economies must adjust to increased trade, creating both winners and
losers. Some firms and industries will grow as they expand into overseas markets,
whereas others will contract, merge, or perhaps even fail when faced with increased
competition. While the adjustment process may be healthy from a macroeconomic
1 For a discussion of worker assistance and current legislation, see the CRS trade electronic
briefing book: [http://www.congress.gov/brbk/html/ebtral.shtml]
Congressional Research Service o0o The Library of Congress
CRS Report for Congress
Received through the CRS Web](ViewImageLocal?handle=hein.tera/crser0166&div=1&collection=&method=preview&ext=.png&size=3)
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