Any sign that the President-elect is wavering in his support to a liberal and open global economy, will dent the US image perhaps beyond repair. Neither the US nor indeed the rest of the world can afford this sudden diminution of the US role in the global economy as it is not clear if others are yet ready to take it on.
In India, there are genuine concerns that, going by his past pronouncements on outsourcing and manufactured imports, Obama may turn protectionist. Hopefully, retrograde steps like restricting outward investment flows or outsourcing and reducing the number of service visas will be resisted from within by his own economic advisory team comprising as it does of people like Paul Volcker, Larry Summers and others who have been strong votaries of globalization. The negative effect of such protectionist steps on our software and ITES industry can be significant. Nearly 70 per cent of Indian software exports of close to US$40 billion are destined for the US market and of this a hefty 40 per cent are used by the US financial firms that are currently in deep trouble. It will be more pertinent for the Indian delegation to pursue this issue with Obama’s advisory team than to try and take a lead on restructuring the international financial architecture through the G-20 meeting in Washington.
President-elect Obama, while he can of course take the protectionist route, is unlikely to do so for several reasons. First, he appears to be strongly committed to reversing the decline in US global prestige and leadership that occurred during the Bush presidency and specially over the last four years. He cannot hope to achieve this by leading the US away from globalization and turning his back to long standing US commitment to free market for goods and services. This will seriously erode the legitimacy that Pax America currently enjoys. A protectionist move by Obama presidency must surely imply the beginning of the end of the US economic hegemony in the world and accelerate the shift away from the Atlantic basin to Asia. Second, US firms with overseas operations, especially in Asia, will for good reason, resist these moves as it threatens their competitiveness and survival. The loss of competitiveness and eventual shutting down of these firms will also result in job losses within the US. Third, any unilateral protectionist moves by the US will raise the specter of competitive tariff escalation by its trading partners which will exacerbate the current crisis and make a worldwide depression that much more possible. There are more than enough people within the US intellectual community and hopefully also within the administration who can hammer home the dangers inherent in such an approach and thus stop the Obama administration from going ahead in the protectionist direction. Fourth and last, higher protection levels will ring the death knell of the Doha Round and effectively also the loss of WTO credibility and legitimacy. I doubt if any US president can precipitate such an eventuality. These factors will hopefully ensure that while there will be plenty of threats, and perhaps even some calls for voluntary export restraints from the incoming administration, these will not be carried forward in the form of imposition of higher tariff or non-tariff walls by the US.
On the contrary, the new administration could rely much more on the traditional and admirable American strengths of product innovation, technology upgradation and higher productivity to provide the real thrust for pulling out the US economy from the recession into which it has unmistakably slipped. Obama has himself emphasized these opportunities during his campaign. He will find out very quickly that in this positive approach for handling the global economic downturn, India with its dynamic entrepreneurs and large supply of technical professionals has a lot to offer. A knowledge economy based an Indo-US partnership cannot only be a win-win for the world’s two largest democracies but also have significant positive externalities for the rest of Asia and the world.