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The Democratic Party found itself polarized when state after state in Super Tuesday's primaries on Feb. 5th voted overwhelmingly for Barack Obama. The black vote propelled Obama to victory, while Clinton did well with female voters.
The critical Hispanic vote of 14 percent kept Clinton in the lead. Hispanics have no liking for black politics and overwhelmingly voted for Clinton. Whereas Clinton's strength is experience, Obama is for change and repeatedly displayed strength with young white, black and immigrant urban professionals. He is also the Democratic Party establishment man.
Republicans look set to lose this presidential contest. A two-time failed aspirant to the White House is in the lead and will get the party nod to challenge the Democratic nominee. Republicans -- with a low-key candidate, a stalemate in the Iraq war and a looming recession -- are unlikely to win. In addition a significant segment of the Republican Party thinks McCain is not conservative enough.
Critical to India and China is not only who occupies the White House, but the make-up of the Congress and the Senate as well. At the moment the Democrats have a thin majority in both houses and a lackluster leadership. The upcoming elections are likely to change that. Democrats may have a comfortable majority in both houses and may have a new leadership.
Presidential candidates in an election year usually talk tough on trade, finance and foreign policy but soon settle down to reality after the elections. Democrats are by habit protectionists. They also favor import controls, currency reforms and less involvement in foreign wars. This may translate into a fresh look at all the country's trade deals. They will also focus on the U.S. economy. On the domestic front healthcare, immigration and an economic stimulus package are the key issues.
Issues likely to be tackled if the Democrats are in charge are the trade deficit with China, the slumping U.S. dollar, the flight of jobs to Mexico, China, Canada and India and the North American Free Trade Agreement.
U.S. trade has been in the doldrums for more than a decade. Although U.S. exports have grown, it is the imports that have been dragging the U.S. position from bad to worse. The trade deficit with China first appeared in 1985, and has since climbed to an unimaginable US$238 billion in 2007. The Iraq war and the rise of oil prices have also drained huge sums of money out of the United States. All of this has resulted in a slumping U.S. dollar.
The Democrats may take a hard look at NAFTA, which allows freer movement of goods on the trade superhighway between Canada, the United States and Mexico. Its net impact on the United States in 15 years has been a loss of 3 million U.S. jobs to either Mexico or Canada. The United States has benefited a bit with agricultural product exports, but it has not curbed illegal immigration from Mexico.
The situation with regard to China has become more complex. A protection-minded Congress might impose sanctions, which could be followed by Chinese sanctions on U.S. imports. A trade confrontation may begin.
Blame it on the sub-prime crisis or the budget deficit or the Iraq war drain or the slumping housing market -- the U.S. economy has slowed down to a recession level. Investors have had their optimistic profit outlook considerably reduced. The latest interest rate cut and incentive package have not helped one bit. The current U.S. president, in his last year of power, is powerless to do anything more. The sub-prime loan issue will take ten years to clean up. All of this points to a lackluster performance of the U.S. economy.
To gain control of the economy, the president and Congress should cut interest rates as much as possible and do it quickly. Lower corporate taxes, an additional economic stimulus and restored consumer confidence would likely bring the United States back on track, but the long-term issue of the trade deficit will continue to dog the economy.
India will figure heavily in the Democratic equation. First, the Indo-U.S. nuclear deal, now on the back burner in India, may not see the light of day under a Democratic regime. If India is quick enough to get it through during Bush's last year in office, they should consider it lucky. But it is unlikely to happen without upsetting the political apple cart in India.
If elections are forced a year early in India, the present government is unlikely to return. The new political masters in New Delhi will demand a few more U.S. concessions, which are unlikely to be granted, resulting in the demise of the treaty as we see it today. The next opportunity may not come for a generation or so. But if by any chance the present government returns to power after elections then a much bigger strategic partnership with the United States is possible.
U.S.-India trade is miniscule and may not face the ire of the Democrats. The only issue they will dwell upon is outsourcing. Democrats will go out of their way to protect jobs at home, especially white-collar jobs. They may put up restrictions to limit outsourcing, but this is unlikely to dent the current India-U.S. outsourcing regime.
A strategic partnership between India and the United States is waiting for India's nod. It is not happening because the communists in India consider the United States evil and are pulling India away from the U.S. orbit. Communists aside, Indian public opinion favors greater cooperation with the United States, similar to China. If elections are called soon, it is possible that the Indian electorate may hand down a stunning defeat to Indian communists and their fellow travelers.
U.S.-China trade is the toughest of all issues the United States faces in the next five years. If the United States stays cozy with China, the U.S. trade deficit will continue to grow. If the United States applies pressure to right all the wrongs, first the Chinese will growl, second U.S. businesses, accustomed to cheap imports from China, will suffer.
Either way in the short term it is a lose-lose situation for both China and the United States. One wonders how the United States got into this position. President Bill Clinton got bad advice from 1992 to 2000 to allow limitless imports from China. Later the president and Congress were powerless to act in the face of U.S. corporate lobbying.
The United States has one advantage: The Chinese are leaving all the money earned via trade behind in the United States. This has helped the U.S. economy, and the country turns a blind eye to the ballooning trade deficit. When the Iraq war drained its cash, Chinese money came in handy for the United States. In this complex environment, if the United States draws a line on Chinese imports, the Chinese will start moving their cash out of the United States.
Hence the United States has traded away its future over the last 15 years for short-term cash gains. This is hard to reverse. The Chinese may not agree to allow their currency to appreciate. The United States may find it hard to slow down Chinese imports, hence a Congressional action on countervailing duties on subsidized items could begin -- in other words, the beginning of a trade war.
Alternatively the United States may force China to aggressively implement labor rights in all trade deals. That would be an indirect way to force the Chinese into higher costs at home. But China may not agree with this either. Other lesser issues like intellectual property rights, etc., may come to the forefront.
The core of the matter is that no easy solution to the China-U.S. trade deficit is likely.
In summary, the U.S. economy has lost ground in many trade deals over the last 20 years. The Democrats' return to full power could mean the reversal of some of the easy trade deals that have been negotiated in the last 20 years. China especially will find it hard to continue the export growth it has seen over the last 15 years.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
