Great mis­con­cep­tions

De­spite the eu­pho­ria he en­gen­ders, Obama faces many chal­lenges

Finweek English Edition - - Inthespotlight - HOWARD PREECE howardp@fin­week.co.za

BARACK OBAMA AL­READY FACES one sig­nif­i­cant po­ten­tial prob­lem: his cur­rent ex­cep­tional level of per­sonal pop­u­lar­ity – above all, glob­ally. It’s vir­tu­ally im­pos­si­ble to see how that could pos­si­bly be as high – never mind even higher – in, say, 12 to 18 months’ time than it is now.

But if Obama’s per­sonal stand­ing can hardly go fur­ther up it can – and at some time cer­tainly will – de­cline ap­pre­cia­bly. That’s pol­i­tics – at least when you head to the White House with the great­est ex­pec­ta­tions on any Pres­i­dent-elect since John Kennedy won the 1960 elec­tion.

Key fact is that it’s hugely eas­ier to be idolised be­fore you have taken any ex­ec­u­tive de­ci­sions than once that of­ten-painful process has be­gun. For Obama the most im­me­di­ate chal­lenge will come from eco­nomics – more specif­i­cally, what trade pol­icy the United States fol­lows un­der his lead­er­ship.

I noted in this col­umn, way be­fore the US pres­i­den­tial cam­paign had even got for­mally un­der way, that the Demo­cratic Party had largely been cap­tured by strong pro­tec­tion­ist in­ter­ests. That was dra­mat­i­cally con­firmed in what proved in hind­sight to be the true fight for the White House – the vi­cious strug­gle for the Demo­cratic Party pres­i­den­tial nom­i­na­tion be­tween Obama and Se­na­tor Hil­lary Clin­ton.

Both con­tenders slugged it out to dis­pute, among other mat­ters, who would be the “tough­est on for­eign­ers” in trade af­fairs and who would be the most “sup­port­ive” of US work­ers threat­ened by ex­ter­nal com­pe­ti­tion.

True, Obama eased back a lit­tle on that mat­ter once he’d won the nom­i­na­tion. Some of his per­sonal eco­nomics team – notably Ja­son Fur­man and Aus­tan Gools­bee – have al­ways been on the free trade side. They were quick to of­fer as­sur­ances that some of Obama’s ear­lier most hard-line views – par­tic­u­larly his threat to pull the US out of the North Amer­ica Free Trade Area (Nafta) – had been noth­ing more than cam­paign rhetoric.

But that’s part of the cur­rent dif­fi­culty with Obama. For all his un­doubted abil­i­ties, in­clud­ing mag­netic ora­tory and his place in his­tory as the first black US Pres­i­dent, many un­cer­tain­ties re­main.

That’s why many coun­tries, in­clud­ing South Africa, are al­ready urg­ing Obama to give prac­ti­cal demon­stra­tions of a clear com­mit­ment to trade free­dom. How­ever, there are many com­plex­i­ties flow­ing from that.

For starters, any pres­i­dent has far less power in de­ter­min­ing US eco­nomic poli­cies – un­like, but crit­i­cally, for­eign pol­icy – than is widely as­sumed. Here Congress – the Se­nate and the House of Rep­re­sen­ta­tives – hold ul­ti­mate au­thor­ity.

The Democrats now com­fort­ably con­trol both arms of Congress. Pro­tec­tion­ism is there­fore very much in the as­cen­dancy in the US. So even if Obama ef­fec­tively prom­ises for­eign lis­ten­ers to aban­don a lot of his pre­vi­ous core anti-trade at­ti­tudes – and that’s still a big if – there’s no guar­an­tee what­ever that he’ll be able to take Congress with him.

That’s very dif­fer­ent to the sit­u­a­tion that con­fronted for­mer Demo­crat Pres­i­dent Bill Clin­ton af­ter his party lost con­trol of both the Se­nate and the House in 1994. Clin­ton could then rely on enough Repub­li­cans and a smaller num­ber of Democrats to make some sub­stan­tial progress on Nafta and other trade-pro­mot­ing ini­tia­tives.

But Obama won’t en­ter the White House in that sit­u­a­tion. Pro­tec­tion­ist Democrats – some ad­mit­tedly mind­ful of the se­vere perils al­ready fac­ing the world’s econ­omy – are now broadly in charge.

Obama is bound to ap­point to his cab­i­net some trade crit­ics from the Clin­ton ad­min­is­tra­tion. Among for­mer se­nior Clin­ton leaders he’s met in re­cent days are two who were al­ways classed as “trade scep­tics” – for­mer chief eco­nomic ad­viser Laura Tyson and ex-Labour Sec­re­tary Robert Re­ich.

On the sur­face that seemed coun­tered by the sug­ges­tions that Larry Sum­mers, exTrea­sury Sec­re­tary, might again be tak­ing up that post.

But Sum­mers – as No­bel eco­nomics lau­re­ate Paul Krugman – has been much less en­thu­si­as­tic about free trade in re­cent years than was long the case.

Iron­i­cally, Sum­mers warned when he was in the Clin­ton cab­i­net that un­less West­ern Europe and Asia helped the US to re­duce its enor­mous and mount­ing trade deficit that would in­evitably fuel pro­tec­tion­ist de­mands in the US. He now seems to con­firm the ac­cu­racy of his own fore­cast.

But who­ever serves in the new Demo­crat ad­min­is­tra­tion – and what­ever hap­pens with Congress – the world will shake an­gry fin­gers at Obama if the US does move to more pro­tec­tion­ist poli­cies.

Then – par­tic­u­larly if, as promised, Obama also pushes West­ern Europe for much more ac­tive par­tic­i­pa­tion in the war in Afghanistan – the new Pres­i­dent’s global pop­u­lar­ity will come well off the boil.

How­ever, that won’t be Obama’s pri­mary con­cern. His em­pha­sis will rather be on bol­ster­ing the US econ­omy, restor­ing con­fi­dence in the low- and mid­dle-in­come hous­ing mar­ket, pro­mot­ing em­ploy­ment – and get­ting re-elected in 2012.

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