Fortress USA? (Interesting)

[OhioChick]

Business Standard / New Delhi January 30, 2008



As the supra-competitive and high-spending jamboree of the American primaries builds up to Super Tuesday on February 5, when Democrats and Republicans will get a fix on their presidential candidates, Indian policy-makers may need to start scrutinising the economic policy agendas of the front-runners. Thus far, discounting the polite and pointless insults that candidates trade at national debates, the Iraq war has been central to the public discourse. Now, it is becoming increasingly clear that the credibility of candidates’ responses to a certain US economic slowdown, the weakening dollar and rising unemployment will determine who beats a path to 1600 Pennsylvania Avenue. Yes, it’s the economy again, stupid, to paraphrase Bill Clinton’s immortal election line.

The reason Indian policy-makers may need to worry is that it is a fair bet that whichever candidate finds himself (or herself) in the White House next January, the chances of rising protectionism are high as US corporations struggle with falling domestic demand. With unemployment running at 5 per cent, it is a fair bet that the big issue will be that of American jobs and their “export”. This impacts India Inc primarily for its IT-enabled services industry, one of the fastest-growing segments of the Indian economy that urgently needs more business to offset the impact of a weakening greenback. It will also raise the barriers for Indian corporations that are looking to acquire US corporations in their search for global scale. The Bush administration has been relatively benign for Indian economic interests, even if it has only been driven by US self-interest. The administration has been steadfast in disregarding the strident demands of labour unions to penalise corporations that relocate their back office operations to countries like India or manufacturing to China. This position is, to be sure, not driven by altruism but simply making good on commitments to big businesses that mostly bankroll the Republican cause and have been anxious to maximise cost efficiencies in an acutely competitive environment. Neither Democratic front-runner Barack Obama nor Hillary Clinton can be described as notably enthusiastic about international economic liberalism. Mr Obama is heavily backed by the trade unions and has, in the past, voted “yes” for moves to end tax breaks for companies that send jobs overseas. Ms Clinton’s record on this is unclear — she has defended outsourcing jobs to India (her closeness to the American Indian community may have an influence here) but voted for a 108 per cent duty on the import of Chinese candles.

The Republican position is clear only insofar as its policies are focused on US Inc. Mitt Romney has no clearly articulated position. Mike Huckabee’s economic stance appears characteristically naïve and oddball. He vaguely talks about needing “fair trade because we’re losing jobs”. He had once even advocated trade sanctions against Saudi Arabia for allegedly persecuting Christians. Only John McCain stands out on both sides of the political spectrum for his staunchly anti-protectionist outlook. “Every time the US went protectionist, we paid a heavy price,” he once said. He has suggested substituting trade treaties for protectionism — a move that augurs well for the proposed Indo-US free trade agreement. All the same, it is uncertain how far he will be able to withstand popular pressures for job protection in the run-up to the Oval office. Joblessness is always an emotive issue and it is in the “blue states” — the traditional Republic vote-banks of Middle America — where joblessness is rising most. The hitherto monolithic banking corporations have already been forced to eat crow following the sub-prime crisis by accepting Asian bail-outs mostly via sovereign wealth funds. Given that few Presidents will risk public perception that they don’t mind jobs going to Asia as well, India would do well to brace itself for a tough time ahead.

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