With its international economic policy very much captive to factious domestic politics, the United States is hardly in a position to exercise the global economic leadership role that would have been expected of it in these abnormal times. Since the financial crisis of 2008, it has been the robust growth in countries such as India and China that offset the anaemic performance in the advanced economies. Indeed, the advanced economies are in worse shape today than they were during the initial phase of the recovery. With euro zone policymaking also in disarray, emerging economies have even greater reasons to worry. They realise that solutions to most of the global economic problems will not come from the West because of the divisive politics in the U.S. and the euro zone countries. In the U.S. the bickering in Congress over debt and deficit has rendered much of its international economic policymaking counterproductive. Gains have been few and far between, and even those, such as the much-delayed Congressional approval to bilateral trade deals with South Korea, Panama and Colombia, are not considered significant. These deals were negotiated four or five years ago by the previous administration, and, in any case, are unlikely to contribute significantly now to growth and employment. Most of the tariffs with South Korea are already low. However, these pacts have been widely blamed by the trade unions and the public for sending jobs abroad. The debate over the trade deals has become a proxy for those over employment and globalisation.
Free trade has become a casualty as the world's number one economy has turned inwards embracing protectionism in many notable instances. The Doha development round of trade talks is as good as dead. The absence of political will in the U.S. to pursue free trade agreements overruling significant domestic opposition is palpable. Even more ominous is the purport of a bill recently passed by the Senate that aims to punish China for holding down its currency and hence boosting its export competitiveness. Any “fundamentally misaligned” currency would be deemed to be a subsidy subject to countervailing duties. The move has been severely criticised by China and other countries which see in the new legislation shades of the “protectionist “ policies of the 1930s that made the Great Depression even worse. The World Trade Organisation is sure to frown upon the imposition of such duties. There is a fear that such a move might lead to full-blown trade and currency wars between the world's top two economies, with all other countries being inevitably drawn into them.