The results from the U.S. mid-term elections pose great risks to Canada and the rest of the world.
We are now faced with a highly divided U.S. political system that is heavily focused on short-term domestic politics and the next presidential election campaign in 2012. This is happening at a time when a cohesive U.S. government is more important than ever in dealing with the big global economic challenges.
The U.S. is like a “wounded lion,” warns Kenneth Rogoff, a former chief economist of the International Monetary Fund.
One danger is that the U.S. will seek foreign scapegoats for its own problems and lash out at other parts of the world. In the U.S. election campaign, both Democrats and Republicans ran inflammatory commercials demonizing the Chinese.
As Rogoff warns, fully 25 per cent of the 30-million-person rise in worldwide unemployment since 2007 has occurred in the U.S. If this situation continues, it can lead to large-scale global trade disputes. “The voter anger expressed in the U.S. mid-term elections could prove to be only the tip of the iceberg,” he says.
While a trade war precipitated by big tariffs on Chinese products would be “self-destructive” and invite retaliation, U.S. politicians may not care as they engage in one-upmanship to build support for the 2012 election.
As it is, U.S. monetary policy has been effectively devaluing the U.S. dollar to boost exports, discourage imports and devalue outstanding U.S. government debt owed to foreigners, including Canada.
When Canada faced a major challenge in the early 1990s to deal with its deficit and debt, there was a national consensus that something had to be done. Likewise, when the British government, more recently, introduced tough budget measures, there was a similar consensus that the deficit was unsustainable. While the British may be doing too much too soon, no political party opposes a deficit reduction strategy.
In the United States, there is no consensus and neither party wants to seriously tackle this issue, even though it won’t go away and will get even worse.
The G20 summit in Seoul that ended on Friday could provide some help to the U.S. But the U.S. also has to show it is developing a credible medium-term fiscal plan to bring a halt to its spiralling deficits and debt. U.S. President Barrack Obama, though, is in a much weakened position and his Republican opponents are united in their determination to wreck his presidency and defeat him in 2012 — not the kind of conditions that lead to consensus or compromise. This means continued economic instability.
There is a second important international meeting that begins in Cancun, Mexico, on Nov. 29, running through to Dec. 10. This is the UN climate change summit, which is being held after last year’s failed summit in Copenhagen to develop a global agreement for a serious strategy to reduce greenhouse gas emissions that, if allowed to keep rising, could bring major disaster to different parts of the world in the decades ahead.
But with the Republican Party opposed to serious action, and its Tea Party wing even questioning the need to do anything, the U.S. Congress will be unable to agree on energy/climate change legislation, meaning the U.S., although it is one of the world’s highest emitters of greenhouse gases on a per capita basis (along with Canada), is unlikely to be able to make any kind of credible commitment at the forthcoming climate change summit.
While it is important for other countries to keep the U.S. engaged, and on the economic front even give some help in Seoul, the hard point is that Americans have to come to terms with the fact that the American Dream is in trouble and that this is their fault, not the fault of other countries.
What we are witnessing is an erosion of U.S. influence on the world stage. As Rogoff contends, “American hegemony over the global economy is perhaps in its final decades. China, India, Brazil and other emerging markets are in ascendancy.” The question is whether this transition will proceed smoothly or whether it will be marred by an angry U.S. lashing out at the rest of the world.
David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.