In The Media

When the U.S. shut down, the world’s economy felt the effects

by Colin Robertson

The Globe and Mail
October 23, 2013

The ability of United States to project influence in the world rests on its economy. This past month, with congressional gridlock turning into government shutdown, has hurt the economy and undermined belief in the American way.

The self-inflicted damage to the USA – Standard and Poor’s reckons this latest episode cost the U.S. economy $24-billion – will stunt growth for this year with the inevitable trickle-down effect on global trade and finances.

Then there is the international effect.

Where normally President Barack Obama is front and centre of the family portraits at international gatherings, this time around, spotting Secretary John Kerry, who stood in for the President at the Asia-Pacific Economic Co-operation summit, is a ‘Where’s Waldo’ moment. Center stage at the summit in Indonesia went to the Chinese and Russian presidents: XI Jingping and Vladimir Putin. Mr. Kerry was barely visible in a rear corner.

Mr. Obama’s absence from the APEC summit is a lost opportunity to push forward the Trans-Pacific Partnership. Trade Representative Michael Froman hoped, optimistically, to conclude the negotiations by Christmas. Like everything else, it gets pushed back.

In the Sino-American competition for influence in Asia, bilateral relationships are also affected. One Indonesian business leader joked that the U.S. is “playing checkers while the Chinese play chess.”

Previous generations of Chinese leaders believed the United States could right itself from bouts of irrationality and that common sense would prevail. But will it?

With an estimated $1.3-trillion in U.S. treasury bonds (the Japanese hold $1.1-billion), the Chinese have reason for consternation. An American financial crisis will hurt China economically, bringing with it the risk of social disruption. Chinese leadership puts a premium on domestic stability.

Some Chinese are calling for a “de-Americanized” world, arguing that while the United States claims the high moral ground it is covertly “torturing prisoners of war, slaying civilians in drone attacks, and spying on world leaders.”

Those in China who implicitly favour greater pluralism and active participation in global institutions designed by the West are also put at a disadvantage by Capitol Hill misbehaviour.

For the West there is a bigger problem.

Since the creation of the western alliance in the wake of the Second World War, the Allies have put their faith in the United States. In recent years successive secretaries of defence have warned the Alliance that the United States could no longer carry the load and that they had to shoulder more of the burden. The “dim future” that then-Defence Secretary Robert Gates warned about may be closer than expected.

Let us hope not.

A power vacuum would be disorderly. The world would look more like that of the 1930s – what the poet W. H. Auden called a “low, dishonest decade.”

If the United States pulls back, who will step forward?

The Chinese? What is their vision of the world? Their ability to project global leadership is doubtful. China doesn’t have allies. Its nationalistic system is not exportable.

Having the United States bear the burden of global primacy has served global peace and financial security. With some notable and costly aberrations – Vietnam and Iraq – American military might has preserved the peace and U.S. naval power has guaranteed the maritime order that makes globalization possible.

There have been complaints about the U.S. Federal Reserve since the birth of the Bretton Woods system in 1944, but its central bankers have done a good job in managing the dollar. Neither the euro, the yen, or the yuan are yet ready for prime time as an alternate reserve currency.

In recent years the U.S. Chamber of Commerce has had a ‘JOBS’ banner hanging from its facade. It should replace it with one reading “Unity.”

When the U.S. Congress behaves recklessly the ramifications are serious. Former treasury secretary Tim Geithner was right when he said that the U.S. problem was not economics but politics and the requirement for it to get beyond the “paralysis” in the U.S. political system.

To repeatedly bring your country to the brink of default is new. It deeply damages a nation that takes pride in the claim that the business of America is business.

Politics aside, the American economy is today in better shape and more stable than Europe, Japan or the BRICS (Brazil, Russia, India, China and South Africa).

The United States remains the land of innovation – outclassing all others in Nobel prizes in the sciences, medicine and economics. It is also the place to which the Chinese elite send their children for higher education.

Now if only the United States would get its political act together.

A former diplomat, Colin Robertson is vice president of the Canadian Defence and Foreign Affairs Institute and a senior advisor to McKenna, Long and Aldridge, LLP.

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