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Claude Smadja: Second-term opportunities

Barack Obama is the same man he has been for the past four years, but he faces entirely new challenges

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Will be a different in his second term? Of course he will draw some lessons from the experiences of his first term. Also, in many cases, the situations he will face will be different. But it is unlikely that his vision of his role or his modus operandi will change radically, even as a number of challenges and difficulties that beset the first four years of the Obama presidency will be as ominously present over the next four years.

On the domestic front, the two key issues that will shape his legacy are the same as those he confronted on the very first day in office. One, how to bring the back to a path of growth high and sustainable enough to significantly reduce unemployment, which remains close to eight per cent? Additionally, how to revert the trend that has seen the American middle class not only shrinking in terms of overall numbers, but also suffering a decline in consumption and in its standard of living? In that respect, the president can no longer rely on the huge injections of public money that helped mitigate the recession and initiate a recovery in his first term. His margin of manoeuvre is even more limited compared to four years ago. In fact, his best hopes rest on an improvement in the and on efforts to recreate a climate of confidence that will encourage businesses to invest and to hire.

And here comes the second key domestic challenge that Mr Obama faces: even though the showdown with the Republicans over raising the US debt ceiling and over the budget has been postponed to March, nothing is really settled. The prevailed on January 1 on raising taxes without cutting entitlements — which the Republicans were demanding as the price for avoiding a fiscal cliff. But new tests of will are looming ahead, and the kind of nerve-racking brinkmanship we saw at the end of 2012 may be repeated.

This is definitely not the way to create the kind of context most propitious to enhancing business and consumer confidence. In addition to that, Mr Obama does not really show any determination to address the issue of budget deficits and the mounting public debt, which are eroding the US’ economic strength and its clout as a superpower. An optimistic version could be that, in his first term, Mr Obama might have considered an anaemic recovery was not the best time to cut federal government expenditure, thus avoiding the economic and fiscal policy mistakes that have killed growth prospects in Europe. But Mr Obama’s refusal to cut entitlements is more likely a reflection of his philosophy shaped by his years as a social activist.   

All the same, Mr Obama has a genuine opportunity to make a historic mark in his second term. This comes from the opportunities created by the gigantic resources of natural gas that the US can now exploit. If the administration puts in place the right policies to exploit this potential, not only will low energy costs give the US economy a significant and sustainable competitive edge, but additional gas export revenues will help reduce the trade deficit. At the same time, the increasing use of natural gas will cut carbon emissions in a dramatic way. It is worth noting that the challenge of climate change was the single policy item on which the president elaborated the most in his inaugural address. Having renounced reaching a compromise with Republican Congressmen on that issue, he will now rely on executive measures to bypass the US Congress and – to a large extent – on the environmental progress that the fast-growing use of natural gas will allow in the coming years.

What is significant – though expected – is the near-absence of foreign policy-related issues from the inauguration speech. In that respect, two key challenges and one big question lie ahead.

The first and most important challenge is linked to China. The relationship between Washington and Beijing deteriorated in his last term, and the trust deficit between the two countries is increasing. The Pivot to Asia strategy of the White House and the effort to achieve a Trans-Pacific Partnership agreement with Asia-Pacific countries are increasingly seen by Beijing as another manifestation of a containment policy aimed at slowing down – or even blocking – China’s emergence. In Washington, the view is that there is too much opacity about China’s long-term agenda and about its motivations in building its military power. China’s behaviour and growing assertiveness – if not aggressiveness – in its territorial disputes with its neighbours in the South China and East Asia seas are seen in Washington as a worrisome clue to its long-term intentions. Mr Obama now needs to take the initiatives that will help assess the mindset and intentions of the new leadership in Beijing. More importantly, he needs to establish a strategic approach towards China, clearly defining the areas where co-operation is possible – and even a prerequisite for addressing some global challenges – and the areas where competition is unavoidable. This will help manage this competition and ensure it remains under control so as not to threaten global stability.

The second challenge involves Iran. The administration has so far relied on sanctions in the hope of deterring a Tehran building up its nuclear capabilities from reaching the red line at which military action by the US, Europe and/or Israel might become unavoidable. However, nobody knows at this stage if will think that the economic price is becoming unsustainable and that he needs to back-pedal on his nuclear ambitions, or if he would rather accelerate the drive towards nuclear power in the hope that Western powers will not dare to go for military action. Presidential elections in Iran next June might be the turning point in the crisis, and Mr Obama might be facing a moment of truth by the early summer. One thing is for sure: his new Cabinet does not include any hawk, and Washington will go the extra mile to avoid a new military entanglement. So, for instance, don’t expect any dramatic move from Washington on the Syrian civil war.

Then comes the question mark with respect to the Israeli-Palestinian conflict: will Mr Obama decide to engage his political capital to help re-initiate a peace process? John Kerry, his new secretary of state, might be keen to carve a name for himself in reactivating such a process, but it is characteristic of Mr Obama to determinedly avoid getting embroiled in what he sees as a no-win effort. Could events force him to revisit his assumption and overcome his reluctance? History has shown that second terms are full of surprises for US presidents.


 

 

The writer is President of Smadja & Smadja, a strategic advisory firm

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