As Republicans prepare to assert new authority in Congress, America’s overseas trading partners worry that Washington’s political upheaval may pose fresh challenges to the global economy.
Despite pledges to curb government spending and the huge United States budget deficit, Republicans are expected to address anxiety over unemployment and flagging growth by pushing for an extension of the income tax cuts passed during the presidency of George W. Bush — a move that would add to the deficit and, by extension, further weaken the dollar.
“The rest of the world, including Asia, is looking at the United States and seeing no real effective policy measures in bringing the economy back on track,” said Bart van Ark, the chief economist at the Conference Board, which measures American economic indicators. “That is making the U.S. lose its legitimacy in the global economic community as a leader in terms of providing solutions.”
Maintaining taxes at their current relatively low rates could help lift consumer spending in the United States, while a cheaper dollar would make American exports more competitive. But analysts said those fixes would be only temporary and would be unlikely to reverse the waning of the United States economic clout, as emerging markets — led by China, India and Brazil — outpace industrial nations as drivers of global growth.
A weaker dollar, by making European exports priced in euros more expensive, may also damp efforts at an export-led recovery in European countries like Britain, Greece and Ireland that have adopted harsh austerity measures to rein in their excessive debts.
After the Obama administration pushed through changes to health care and to the financial system, voters signaled that they wanted reductions in federal spending. Representative John A. Boehner, the Ohio Republican set to become the next speaker of the House, reiterated a pledge after the elections to reduce the size of government, create jobs and change the way Congress does business.
That is no easy task. Voters also want to keep expensive entitlements and are hoping Republicans can reverse cuts to the Medicare program and extend the Bush tax cuts set to expire at year’s end. CONTINUE READING...
