Obama’s Failed Asia Trip Shows Increasing US, Global Isolation

15 November 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com

To be fair, there were at least two positive outcomes from President Obama’s trip:

1) He publicly endorsed India for a Permanent Seat on the UN Security Council —

and China DIDN’T object 😉 !!!

As many of our Indian readers especially noted, the entire initiative remains a bit ethereal —

and the UN is hardly all that important anymore anyway,

15 November 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com

To be fair, there were at least two positive outcomes from President Obama’s trip:

1) He publicly endorsed India for a Permanent Seat on the UN Security Council —

and China DIDN’T object 😉 !!!

As many of our Indian readers especially noted, the entire initiative remains a bit ethereal —

and the UN is hardly all that important anymore anyway,

even though a Permanent Security Council seat DOES have great symbolic significance, especially for an emerging nation —

but the fact China didn’t immediately object surprised a lot of people, myself included.

largely because it’s been more than a bit snippy with a lot of its neighbors of late.

This and other aspects of the situation could change at any point in the future, to be sure,

but the fact Obama made the move to indicate US support for India’s global aspirations,

and China seemed okay with it, at least at first, is a definite plus.

2) Neither the G-20 meeting in Seoul, Korea nor the APEC summit in Yokohama, Japan broke down in acrimonious recriminations,

which, given what we’re about to say, is definitely an achievement of sorts,

at least at the level of face-saving for all concerned.

But to count as an achievement the fact both meetings ended without fireworks 

is an indication of how low expectations were in the first place.

Now, like the UN, almost all of these international meetings tend to be more ceremonial than substantive,

so it’s hardly a huge success, but it IS something,

especially given the failure of the US and South Korea to reach the free trade agreement Obama had hoped to sign in Seoul,

which most observers considered the “biggest” concrete failure of the trip.

That said, from our point of view, the most important “take-away” from the Asia initiative 

was how clear it is the issues that matter to the US —

and the discourse in which those concerns are expressed —

differ so radically in substance from just about everyone in the world.

This doesn’t necessarily mean the rest of the world is “right” —

especially when some of their logic is looked at critically —

but it does mean the gap between what’s considered important in the US —

and what’s considered important in the rest of the world —

is large, and getting bigger, it seems, all the time.

Aside from the Indian Security Council and South Korea free trade issues,

Obama’s main theme was the need to “manage” and “balance” trade flows,

with an implicit, and often explicit, rehashing of the stale critique of China’s currency policy.

The reason for his focus on that is simple:

He has just suffered a huge and embarrassing mid-term rebuke from US voters —

even tho returning to power the Republicans who created this mess in the first place,

from Reagan forward, intensified beyond all bounds by Cheney / Bush, 

and their huge no-bid contracts for their past / future employers like Halliburton and Blackwater,

is clearly NOT going to solve America’s ever-deepening political economic problems —

and he is belatedly focusing on the key issue of jobs.

Unfortunately, as he has done throughout his Presidency,

in making that effort, Obama is foolishly following the neo-classical ideas

that “deficits are bad” and the US has to “export its way back to economic health” —

the intellectual / academic aspect of the multi-dimensional crisis in which the US has been acutely enmeshed since 2000.

What’s wrong with this line ???

As we have pointed out both here and elsewhere, 

since the end of World War II, the world has had a US-centered world political economy,

in which countries either sell to the US — or sell to countries that sell to the US.

Now, with the rise of China, that fundamental dynamic of the world political economy MAY — 

repeat MAY, not will, no matter how much economic growth China experiences —

undergo a structural change, BUT 

a) it’s by NO means certain something like that will happen, and

b) if it does, it’s NOT going to happen any time soon, and is going to take a long time to undergo,

especially once China realizes there are certain fundamental difficulties 

that are an integral part of being the “center” of a world political economic system —

unless we have even more crises like Black September 2008, 

which would be bad for just about the whole world, although such an eventuality is certainly possible.

In this context, the simple fact is that, since the end of World War II,

global trade has been fundamentally UN-balanced,

with the US serving as the world consumer market and, at least until recently, global financier OF LAST RESORT.

This has meant a system in which other countries can grow by supplying the US domestic market with what it wants.

Thus even though the US has been running huge overall balance of payments deficits since 1959,

and equally huge trade deficits since 1971,

this system has created prosperity for BOTH American consumers AND the rest of the world.

For Obama — and, to be fair, every other economically ignorant US President 

since, well, Franklin Roosevelt and Harry Truman —

to start repeating the tired mantra of “growth through exports” 

flies in the face of the entire post-WWII experience of the US and rest of the world,

BOTH of which have benefited, albeit in different ways,

precisely from an UN-balanced world political economy,

including, but not limited to, the global trade system.

So when Obama comes to a meeting like the G-20 and talks about “balancing” and “managing” world trade — 

in an effort to assure Americans he is attempting to do something about the heart-rendingly horrendous job situation in the US —

he and the rest of the American elite, Democratic and Republican, are living in a dream world 

when they argue America’s economic problems come from “unfair trade” with places like China,

when the low-value-added sectors through which China has rocketed to such economic heights

left the US decades ago, and are never coming back.

But both the jobs crisis AND the totally irrelevant discourse around that crisis are problems the US must confront,

and the way to do that is NOT to talk about trade,

but, rather, how China is eating the US’s lunch — almost literally 😉 —

with its current correct strategy of using its huge cash reserves to focus its efforts for future growth 

on advancing sectors like “clean energy” and moving to the top of the “value added” chain in general.

Again, though, that is a problem the US “leadership” needs to confront, 

which all the rhetoric about trade and Chinese currency values only obscures.

At the same time, when Obama and the US say these things,

the rest of the world — especially leading exporters like Germany and Brazil —

DOESN’T talk about advancing sectors and how to move to the top of the value-added chain.

Instead, they get all huffy and indignant, using the exact same stupid neo-classical ideology — or is it a religion 😉 ??? —

to justify THEIR export surpluses as being, in some way, an indication of economic “virtue”.

This is problematic on its face, for the same reason Obama’s cant about China’s “undervalued” currency is:

their growth has NOTHING to do with either economic virtue, much as Angela Merkl would like to pretend, 

or, more importantly, the way the whole US-centered world political economy has functioned since World War II.

By talking in this nonsensical neo-classical vein, however, 

Obama DOES give countries that DO grow by exporting 

a HUGE opening to criticize his plans for further MONETARY stimulus, aka, Quantitative Easing, or QE for short.

What countries like Germany and Brazil, among others, say is that US plans for QE 

will, in fact, end up doing for the US by the back door precisely 

what the US complains about with China and its open commitment to an “undervalued” currency.

Why ???

Because they say US plans for what Paul Krugman correctly calls an IN-sufficient FISCAL stimulus via more government spending

will end up DE-creasing the value of the dollar v-a-v THEIR currencies.

This, they fear, will make THEIR exports, both into the US and in third-country markets, MORE EXPENSIVE,

as THEIR currency’s value will necessarily RISE v-a-v the US dollar,

as is now, in fact, happening with the Japanese yen, 

thereby hurting THEIR more realistically export-oriented strategies for economic growth / survival.

Seen in this way, the G-20 / APEC / and most such “international leadership” meetings 

can legitimately be seen as “dialogues of the deaf”,

in which these “leaders” aren’t talking to each other about how to solve real global economic problems,

but rather putting on a show for their domestic political audiences of “being tough” with the rest of the world.

Unfortunately, the domestic imperatives of each of these countries are radically different,

which is why these meetings end up being such a bad joke, albeit not very funny, 

especially for ordinary people whose livelihoods depend on the successful functioning of national and global political economic systems,

which, in case you haven’t noticed, are generally doing pretty damn poorly,

with the attendant costs in human suffering and misery.

And that’s what makes Obama’s whole Asia trip such a failure,

something we say with great sadness and not anger.

Just as happened during the late 1920s and 30s,

the political leaderships of the economically most important countries are off on their own trips,

trying desperately simply to satisfy their domestic constituencies,

without much thought to the very real and constantly getting worse global system problems.

It’s not like he’s doing anything all that different than the “leaders” of any other country.

And that’s precisely the problem, especially at a time when the US itself is continuing the downward spiral 

in which it has been enmeshed chronically since Reagan, and acutely since the disaster of Cheney / Bush.

From Obama, we all expected — and needed — so much more.

The expectations are pretty much gone — but the need grows ever greater by the day.

David Caploe PhD

Editor-in-Chief

EconomyWatch.com

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