Strategy

Outlook 2008 (On the U.S.): In a sour mood

U.S. domestic politics and public opinion are among the global market's greatest risk factors.

Among the most immediate sources of risk for geopolitical stability and the global economy, one may come as a surprise. For the first time in my career as an analyst, U.S. domestic politics and public opinion are among the greatest risk factors to the global market.

Anxiety is growing inside the United States that America’s global influence is on the wane. In recent years, negative international attitudes toward the U.S. — and surprise among many Americans that attempts to export democracy haven’t been well received — have shifted popular sentiment at home. The war in Iraq, the rise of China, Washington’s inability to denuclearize Iran and North Korea, the global move away from the dollar, and a host of other issues threaten to erode the American commitment to global leadership on challenges ranging from trade liberalization to international security to climate change. Increasingly, the United States has neither the political will nor the political capital to provide necessary public goods to support global economic growth.

In addition, domestic fears for the stability of the U.S. economy — stoked by anxiety over the sub-prime mortgage fiasco — have intensified. As America loses manufacturing jobs, homeland security worries persist, and illegal immigration emerges as a hot-button, election-year issue, we’ve seen a backlash against globalization.

The Pew Global Attitudes Project, an international survey initiative, released a poll in October. It found that just 59% of Americans surveyed said they consider international trade “very good” or “somewhat good” for the United States — down 19 percentage points from just five years ago. Compare that with 82% of Russians and 91% of Chinese who expressed those views. The 2008 presidential and congressional elections will only add to the protectionist momentum.

The Pew poll also found that just 45% of Americans (versus 64% of Chinese) held a positive view of “large companies from other countries.” Bids by a state-owned Chinese energy firm to acquire the U.S. oil company Unocal in 2005, and a state-owned Arab firm’s bid to operate several U.S. ports in 2006, caused political firestorms and were aborted. There’s now considerable pressure for reform of the Committee on Foreign Investment in the United States. The committee has become a political football, obstructing foreign investment bids for certain types of assets.

We’ll also see increasingly strained trade relations between the United States and China in 2008. Some American lawmakers charge that China’s currency policy adds to a spiralling bilateral trade deficit and they insist that China’s failure to protect U.S. copyrights and stem the flow of dangerous consumer products into the U.S. demands a tough response. Congress will usurp more policy influence from Treasury Secretary Henry Paulson this year, creating uncertainty over U.S. leadership on these issues and worries over what will come next from Capitol Hill.

Election-year debates over the U.S. role in the world and its relationship with globalization will turn America’s focus inward. Washington’s willingness to renounce some aspects of its international political and economic leadership will fuel a range of unexpected risks for geopolitical stability and the global economy. The key question: Will this trend prove short-lived? Once the dust settles after the November elections, will the United States re-engage with its allies, assert leadership on non-proliferation issues, rededicate itself to trade liberalization, reinvigorate the U.S.-Chinese Strategic Economic Dialogue, and embrace its historic role as provider of international public goods? Or will 2008 prove a tipping point in a trend toward deeper isolationism?

The answer will depend less on the election outcome than on the evolution of public confidence in U.S. security and the health of the economy. If the U.S. slides into recession, if the sub-prime mortgage crisis inflicts serious pain on the real economy, if America suffers even a small-scale terrorist attack, or events in Iraq generate greater public demand for an immediate U.S. troop withdrawal, Washington may well renounce key aspects of its role in setting the international agenda.

The warning signs are already there. Several of the American presidential candidates — both Republicans and Democrats — have called for tightened trade policies, an overhaul of immigration laws, and a renewed focus on homeland security. The risk is growing that health-care and entitlements reform, climate-change initiatives, and a more multilateralist approach to U.S. foreign policy will suffer neglect.

Over the longer term, it remains more likely than not that America will resist the most obvious protectionist and isolationist temptations. But momentum is moving in a dangerous direction, and I’m accordingly less optimistic than I was six months ago.

Ian Bremmer is president of the Eurasia Group in New York.