Obama’s Next Steps

In the coming weeks, the most fascinating issues will be whether Democrats and Republicans can agree on a fiscal compromise. If not, tax breaks will run out at the end of the year and massive expenditure cuts will be triggered in January 2013 – a double dip in spending power that will have dramatic effects on economic activity. Moreover, the federal debt ceiling will likely need to be raised again in February 2013. In other words, fierce conflicts between the president and Congress are sure to continue.

Political Blockade

Josef Braml said that the 2011 budget negotiations already showed “that it is not economic problems that have brought the country to the abyss, but rather the inability of politicians to reach compromise.” But Claudia Schmucker pointed out that the effects of political failure regarding the so-called “fiscal cliff” would be dramatic enough that it will likely compel members of Congress to reach a compromise.

Many of the president’s plans are threatened with failure in the coming legislature period due to the objections of Republicans in the House of Representatives. But Braml highlighted that there is one peculiarity in the US political system that could actually give leeway here: the lack of party discipline. Republicans may well follow the president on new trade initiatives; Obama will depend on their votes because he cannot rely on the support of friends in his party who are close to unions.

Room to Act on Trade Policy

The United States is pursuing a number of bi- and multilateral treaties, although it no longer seeks to conclude the world trade round. Claudia Schmucker said that the US government thus hopes to “wrap up one of the most comprehensive free trade agreements, the Transpacific Partnership, with a number of other countries in Asia, North America, and South America” next year. In contrast, a transatlantic agreement has thus far not had much success and will only be taken up by Obama when the experts at the EU-US High Level Group on Growth and Jobs recommend it.

A Strategic Realignment

The assessments made by DGAP experts and the subsequent discussion made clear how much the tense domestic and economic situation has dominated the agenda in Washington. In terms of foreign policy, this may lead to the United States considerably reducing its global engagement and could put further pressure on its allies. Indeed, the Americans will continue to maintain a presence in the Middle East, as it has substantial security and energy interests in the region, and the US will continue to stand by Israel. “But in order to reduce costs, Washington will have to find new ways to deal with, for example, military armaments by using more drones instead of traditional devices,” according to Josef Braml.

The strategic focus of US foreign policy now lies in Asia. The Americans are seeking new partners and have sought to contain China’s rise. The boom being experienced in the People’s Republic  is a major problem for the United States, and this has pushed Beijing into the role of rival, said Eberhard Sandschneider. “The central foreign political challenge of Obama’s second term will be establishing a rational relationship with China. The current government has not yet accomplished this.”

Demands on Europe

A significant monetary conflict will play out between Europe and America; more specifically, between the euro and the dollar, said Josef Braml. Ultimately, this dispute is about who can better finance their debts.

Aside from the euro crisis, Europe hardly played a role in the American election. Claudia Schmucker made clear how interested Washington is regarding a resolution to the debt crisis in Europe, which is one of the most important foreign markets for the United States. The Americans have thus pressured the Europeans to move toward a massive purchase of state bonds and to collectivize debt on the continent.

Europeans and Germans will receive strong diplomatic pressure from Washington in two areas in the coming years: In monetary policy, which has become key to US economic policy, and in security policy, in which the Americans are pushing their allies to take more responsibility and carry more financial and military burdens. Sandschneider concluded: “The Democrats have something to celebrate – but we probably don’t!”