People have been overwhelmed by his victory but business leaders are guarded in optimism. Virat Bahri & Pallavi Srivastava of B&E analyse what Barack Obama’s election could mean for business
Raising concerns over rising trade deficits, Obama has given clear indications for an overhaul of the US trade policies which will clearly not be in favour of cross border trade. Take trade with China for example. The US trade deficit with China was $256 billion last year and Obama strongly believes China’s manipulation of its currency is responsible for this. Obama has asserted that he will pressurise China to cut down on its exports and rely more on the domestic demand in future. He has also backed laws that define currency manipulation as a subsidy under US trade law – thus creating an opportunity to impose heavy duties on Chinese imports. Obama has also talked about reopening NAFTA to establish strong labour and environmental provisions and change investment provisions in favour of US domestic corporations as against foreign corporations. Then Obama has clearly indicated his distaste for companies outsourcing jobs across America. He has favoured tax benefits for companies which don’t outsource jobs; this clearly could be troubling for India. He has talked about ending tax breaks for companies that outsource manufacturing jobs, this again is alarming for countries like China, which are becoming world manufacturing hubs. FICCI’s Roy told B&E, “Obama and his team have given clear indication to adopt a practical stand on trade policy and not be blinded by free market approach if it’s not working in their national interests. Clearly, if they find that globalisation is hurting the American economy they won’t hesitate inclining towards protectionism, which will affect global trade.”
When he joins office, though, Obama’s primary focus will be the financial crisis. Here, he has to walk a tight rope. Obama has formed an elite team of advisers to help him shape the agenda which includes people like Warren Buffett, former Treasury Secretary Larry Summers, Eric Schmidt (CEO, Google), Xerox Chairman Anne Mulcahy, Time Warner Chairman Richard Parsons, Robert Reich and Robert Rubin (both Clinton cabinet secretaries). Austan Goolsbee, professor at the University of Chicago GSB, is expected to lead his team of economic advisors.
As of now, Obama’s focus is on the $700 billion financial rescue package passed by the Bush administration. He has also advocated a second stimulus package to fuel the economy. In his manifesto, Obama has talked about a $50 billion package, which includes $20 billion in tax rebates, $10 billion to extend unemployment benefits, $10 billion to prevent foreclosure on primary residences and aid state governments. But Bill Shughart, economics professor at the University of Mississippi, feels that a stimulus package will only bring additional deficits to the elephantine $1 trillion deficits of the US economy. However, it is also felt that if the stimulus package is designed such that money is used more to pump dollars in infrastructure rather then going directly to the taxpayers, it will help the economy more as it will create jobs and would reap long term benefits. Roosevelt used a similar approach in the 1930s.
Obama is planning to work on both ends. On one hand, he has promised a tax structure to cushion the middle class Americans to deal better with recession, on the other, he is looking for long term solutions to bail out the economy. For this, he plans to invest in US infrastructure to create jobs in the long term and also reduce dependence on oil. He plans to create a National Infrastructure Reinvestment Bank and infuse $60 billion over 10 years, to finance transportation infrastructure projects across US. As per estimates, these projects will create up to two million new jobs (direct & indirect).
All said and done, Obama will have to certainly move away from rhetoric now and focus on pragmatism. Reality bites hard when it does. Take his tax policy for instance. An analysis by the Tax Policy Center estimates that without cuts in government spending, Obama’s overall tax plan would increase the national debt to around $3 trillion (including interest costs) by 2018! And outsourcing of services and manufacturing is an instrument of competitiveness; discouraging it would only make America Inc. more uncompetitive. Also, his rhetoric on promoting more green business in the US is noble; but it’s not an easy horse to ride; and can’t take priority over the economy as of now.
You can’t overstate the fact that Obama stands for quite a lot – his election is the fruition of Martin Luther King’s dreams of a promised land; and an ode to Abraham Lincoln’s legendary endeavours to end slavery in US back in the 19th century. But now it’s time for Obama to read Roosevelt far more than Lincoln.
Raising concerns over rising trade deficits, Obama has given clear indications for an overhaul of the US trade policies which will clearly not be in favour of cross border trade. Take trade with China for example. The US trade deficit with China was $256 billion last year and Obama strongly believes China’s manipulation of its currency is responsible for this. Obama has asserted that he will pressurise China to cut down on its exports and rely more on the domestic demand in future. He has also backed laws that define currency manipulation as a subsidy under US trade law – thus creating an opportunity to impose heavy duties on Chinese imports. Obama has also talked about reopening NAFTA to establish strong labour and environmental provisions and change investment provisions in favour of US domestic corporations as against foreign corporations. Then Obama has clearly indicated his distaste for companies outsourcing jobs across America. He has favoured tax benefits for companies which don’t outsource jobs; this clearly could be troubling for India. He has talked about ending tax breaks for companies that outsource manufacturing jobs, this again is alarming for countries like China, which are becoming world manufacturing hubs. FICCI’s Roy told B&E, “Obama and his team have given clear indication to adopt a practical stand on trade policy and not be blinded by free market approach if it’s not working in their national interests. Clearly, if they find that globalisation is hurting the American economy they won’t hesitate inclining towards protectionism, which will affect global trade.”
When he joins office, though, Obama’s primary focus will be the financial crisis. Here, he has to walk a tight rope. Obama has formed an elite team of advisers to help him shape the agenda which includes people like Warren Buffett, former Treasury Secretary Larry Summers, Eric Schmidt (CEO, Google), Xerox Chairman Anne Mulcahy, Time Warner Chairman Richard Parsons, Robert Reich and Robert Rubin (both Clinton cabinet secretaries). Austan Goolsbee, professor at the University of Chicago GSB, is expected to lead his team of economic advisors.
As of now, Obama’s focus is on the $700 billion financial rescue package passed by the Bush administration. He has also advocated a second stimulus package to fuel the economy. In his manifesto, Obama has talked about a $50 billion package, which includes $20 billion in tax rebates, $10 billion to extend unemployment benefits, $10 billion to prevent foreclosure on primary residences and aid state governments. But Bill Shughart, economics professor at the University of Mississippi, feels that a stimulus package will only bring additional deficits to the elephantine $1 trillion deficits of the US economy. However, it is also felt that if the stimulus package is designed such that money is used more to pump dollars in infrastructure rather then going directly to the taxpayers, it will help the economy more as it will create jobs and would reap long term benefits. Roosevelt used a similar approach in the 1930s.
Obama is planning to work on both ends. On one hand, he has promised a tax structure to cushion the middle class Americans to deal better with recession, on the other, he is looking for long term solutions to bail out the economy. For this, he plans to invest in US infrastructure to create jobs in the long term and also reduce dependence on oil. He plans to create a National Infrastructure Reinvestment Bank and infuse $60 billion over 10 years, to finance transportation infrastructure projects across US. As per estimates, these projects will create up to two million new jobs (direct & indirect).
All said and done, Obama will have to certainly move away from rhetoric now and focus on pragmatism. Reality bites hard when it does. Take his tax policy for instance. An analysis by the Tax Policy Center estimates that without cuts in government spending, Obama’s overall tax plan would increase the national debt to around $3 trillion (including interest costs) by 2018! And outsourcing of services and manufacturing is an instrument of competitiveness; discouraging it would only make America Inc. more uncompetitive. Also, his rhetoric on promoting more green business in the US is noble; but it’s not an easy horse to ride; and can’t take priority over the economy as of now.
You can’t overstate the fact that Obama stands for quite a lot – his election is the fruition of Martin Luther King’s dreams of a promised land; and an ode to Abraham Lincoln’s legendary endeavours to end slavery in US back in the 19th century. But now it’s time for Obama to read Roosevelt far more than Lincoln.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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