American policymakers are pressing for more trade with Mexico and Canada as more Americans lose their jobs. Jobless claims rose 10,000 last week, above expectations and a 3.5% jump from the prior week. The Department of Labor study saw more Americans looking for work, causing the four-week moving average of jobless claims to remain steady.
Several recent studies, both official and from third-party research firms, have shown continued weakness in the labor market. Economists disagree on the cause of this stagnation, although the Federal Reserve has increasingly warmed to Harvard economist Lawrence Summers’s hypothesis that America and the world are facing a stage of secular stagnation, in which economic growth remains stubbornly low. This is driving more Americans out of work and making it harder for them to find new jobs.
One response to this trend from politicians both in America and abroad has been to press for more free trade. While controversial, trade agreements like the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) are being promoted as ways to get more international trading activity that will boost growth and cause a rising tide to help workers.
An earlier and much older free trade agreement, NAFTA, was the focus of a summit between Canada, the United States, and Mexico this week, as President Barack Obama met with his counterparts in the North American countries to discuss ways to boost the countries’ economies.
"The integration of national economies into a global economy—that’s here. That’s done,” Obama said, adding that America needed to set the standards for global trade in the future. "The question is under what terms are we going to shape that economy."
Political critics note that free trade has had a deflationary effect on wages, noting American workers are earning the same on an inflation-adjusted basis since NAFTA began. Dismissing these criticisms as “nativism, or xenophobia, or worse—it’s just cynicism,” Obama argued that increasingly popular complaints that free trade are not benefiting workers is economically inaccurate.
The most recent and noteworthy popular response against globalization has been the United Kingdom’s vote to leave the European Union, while Republican frontrunner Donald Trump has repeatedly decried free trade agreements as a negative for American workers. Obama dismissed these increasingly popular arguments.
"I’m not prepared to concede the notion that some of the rhetoric that’s been popping up is ‘populist,’" he said, adding that politicians arguing against free trade are "something controversial in order to win votes. That’s not the measure of populism."
Meanwhile, the Federal Reserve is increasingly conceding that America’s economy is not as strong as they had asserted just a few months ago. James Bullard, historically one of the most hawkish Federal Reserve chiefs, said in a recent speech that output growth remains low, but “growth could improve if productivity growth improves."
Bullard did not say what would catalyze productivity growth.