The US: A Worried Obama Should Worry The World

This time last year most of the world was abuzz with talk of hope and change following Barack Obama’s historic inauguration. Just 12 months on, hope has turned to fear and anger – at least among America’s increasingly volatile electorate.

Mr Obama’s rapid fall from grace was doubly underlined in mid-January on the eve of his first anniversary in office when the usually staunchly liberal voters of Massachusetts, by voting to put Republican Scott Brown into the Senate, issued what must rank as the most punitive protest vote in recent US history. By depriving Mr Obama of a controlling super-majority in the Senate, the traditionally Democratic stronghold gave him a premature hint of what it would be like to turn into a lame duck president. Mr Obama’s signature healthcare reform effort could yet become its first casualty.

The humiliation in Massachusetts also served as a reminder – if any were needed – of the severe constraints under which Mr Obama is operating both at home and abroad. On the domestic front, the US is becoming increasingly difficult to govern. Whether that can be laid at the door of the polarising effects of the Great Recession or to deeper structural factors such as the increasingly partisan character of America’s two main parties is an open question. It is probably a combination of both. Either way, Mr Obama looks in growing danger of being the principal victim of rising voter frustration in the mid-term Congressional elections in November.

The policy implications are not good. Mr Obama’s domestic woes are likely to grow worse in the countdown to November. Many economists expect unemployment to continue rising over the next few months. Most of the rest do not expect it to fall. This means that the voter anger displayed in Massachusetts will keep on simmering unpredictably. Managing that domestic turmoil, in turn, will place growing demands on Mr Obama’s attention as he tries to forestall a Clinton-style defeat in the Congressional polls. Having come to office with a bumper majority in both main branches of government, Mr Obama will do all he can to prevent a switch of control to the Republicans so soon.

The implications for foreign policy are two-fold. First, managing domestic woes will leave Mr Obama with precious little time or scope to embark on imaginative new initiatives, such as reviving the Arab-Israeli peace talks. Mr Obama is suddenly a weaker president. Second, Mr Obama is likely to move in a more populist direction on the economy, which could lead to friction with America’s partners. Perhaps the biggest worry is on trade policy. In its first year, the Obama administration showed little interest in new trade initiatives and did very little to revive the stalled Doha round of world trade talks.

But barring one or two symbolic actions, such as the imposition of countervailing duty on Chinese tyre imports in October, and some “Buy America” clauses in the $787bn stimulus he pushed through in January, Mr Obama did not move the trade agenda backwards. Indeed, the US and its main G20 partners won grudging plaudits from the trade community for largely resisting the temptations of overt protectionism.

Following the setback in Massachusetts, all such bets are now off. America’s angry voters may be responding in diverse ways. But the source of their anger is common – economic pain, particularly the lack of jobs. Polls suggest that voters blame their plight on a combination of Washington, Wall Street and China. Detaching Washington from the other two will be Mr Obama’s chief objective over the coming months.

That accounts for Mr Obama’s tougher posture towards Wall Street, which had hitherto emerged more unscathed than its counterparts in the UK, France and elsewhere. It will also sharply increase the temptation for Mr Obama to step up pressure on China to delink its currency from the dollar. Failure by Beijing to do so could push Mr Obama to take far more substantive trade actions against China. In short, the Massachusetts result is unlikely to be good for world trade.

Nor will the setback do any favours to global talks on climate change. Even before the vote in Massachusetts, Mr Obama looked unlikely to be able to push a cap and trade bill through the US Senate this year. That left US negotiators with one arm tied behind their back in Copenhagen in December. But America’s partners still held out the hope that Mr Obama could get cap and trade on to the statute books before the next round of talks in Mexico City in December. That prospect is now almost certainly on ice until 2011 at the earliest, which means that the US will continue to stand alone among the major developed economies in lacking a formal domestic emissions reduction target.

Finally, Mr Obama is likely to batten down the hatches on national security. The failed airline bomb attempt on Christmas Day has already had a sobering effect on Mr Obama’s White House. The near-miss offered a sharp reminder of the administration’s acute vulnerability to a successful terrorist attack, which could sink his presidency. Gone are the days when Mr Obama could talk happily of closing Guantanamo Bay. Just a year into office, Mr Obama’s back is already against the wall. The implications for foreign policy are mostly negative.