US shutdown has serious implications

American government shutdown from the early hours of first October has wide ranging implications for the United States as well as the wider world. While the adverse impact of this is already being felt in that country, it is a matter of time before its impact on the global economy and politics is felt.

It is not for the first time that the US federal government has temporarily shut down. It happened in the 1970s, 1980s and most recently in 1995-96 during the Clinton administration. The impact of past government shutdown was largely a domestic affair of the US. But the international repercussion of the current standoff between the two branches of the US government—the White House and the Capitol Hill-- could be truly grave. The current political confrontation is a sign of a very complex dynamics in the US that reflects a great political divide in the country between the executive and the legislature, between the Democratic Party and the Republican Party, and within the Republican Party between the Tea Party Conservative faction and the moderate wing.

Secondly, this standoff follows the unresolved issue of American government debt limit of 2011, which has to be resolved before  October 17 to avoid default in debt payment and allow the government to borrow more money to make its due payment after that date. According to one estimate, the US government will be left with only $30 billion and its payment obligations may be to the tune of $60 billion per day by that day.

Hitting the poor

Thirdly, the US recovery from the recession since 2008 is incomplete and the failure of the Congress to pass the budget has begun to hit the poor (more than 45 million people in the US are below poverty line and 23 million households gets government food assistance for survival), the war veterans, the home loan applicants, the tourists, and many others. Inequality in American society is spectacularly high. President Barack Obama and his Democratic Party liberals have taken steps to alleviate the suffering of the downtrodden with a new healthcare act, called Obama Care, and several other entitlement programmes for the poor. But the wealthy Americans have their representatives in the Republican Party and the ultra conservative section within that party is opposed to big government spending for the poor and is supportive of a policy that could give tax rebates to the wealthy.

Even the middle class in the US require government assistance and the Obama administration is in favour of giving tax rebates to this class and raising taxes for the rich. The Republican Party blames the huge budget deficit of the country on the liberal policies of the government and at the moment has held the government at ransom by proposing defunding or delaying the implementation of the Obama Care Act without which the Party would not support the budget and end the government shutdown.

Significantly, the Obama Care Act was passed in 2010, the Supreme Court of the US endorsed it and the 2012 presidential election too backed the healthcare act by re-electing Barack Obama. After three failures in a row, the Republican Party continues to oppose the Obama Care Act.

The dysfunctional government in Washington has been watched by the international community with despair and some hope. America’s creditor nations, like China, are concerned. American allies, like the Philippines, Chile and other smaller countries have expressed disappointment. European trade negotiators are unhappy that their Atlantic partner has postponed the meeting. The member countries of the Trans Pacific Partnership round of trade negotiations are worried that the US Congress could block the TPP agreement after it is concluded.

Most significantly, President Barack Obama due to the political standoff in Washington had to cancel his trip to Asia to participate in two important summits—Apec Forum and East Asia Summit. Such a development at a time when the US is trying to put in place its ‘pivot to Asia’ strategy has cost Washington dearly. The fear of rising China and the need to ‘rebalance’ in Asia drove the ‘pivot to Asia’ strategy. The American allies and strategic partners now view this development with doubts about sustainability of American leadership in Asia.

China has replaced the US as the major trading partner of Japan, South Korea, Australia and even Asean. China has also been investing heavily in the region. The news of Obama’s cancellation of trip to Malaysia and the Philippines came at the same time Chinese President signed business deals worth of $30 billion with his Indonesian counterpart and announced a “comprehensive strategic partnership” with Malaysia. The US credibility will be more and more at stake, unless it can keep its own house in order.      
 
(The writer is chairperson of US studies programme at JNU, New Delhi)