U.S. President Barack Obama won re-election last night with a wider Electoral College victory than many predicted. Network projections started rolling in shortly after 11 p.m. ET. The count was 303 for Obama and 206 for Governor Mitt Romney. (The state of Florida was still counting votes this morning.)
But while the final tally wasn’t close, it’s a status-quo result for the U.S. After a contentious, seemingly endless campaign that saw the two camps spend upwards of $6 billion, little has changed. The Democrats held onto the White House and maintained their majority in the Senate. Republicans kept their House of Representatives majority.
What does this mean for the U.S. economy, and by extension the Canadian and global economies? Four things, I think:
- The fiscal cliff remains a danger. On January 1, Obama’s extension of the tax cuts implemented by President George W. Bush expires and a $1-trillion series of automatic budget cuts (due over a decade) starts. If left unaddressed, it’s expected that this fiscal cliff will shave more than 5% off U.S. gross domestic product in 2013. It virtually guarantees a new recession. Is Washington more or less likely to produce a legislative solution between now and the end of the year as a result of last night? I’m less optimistic after reading what House Speaker John Boehner told POLITICO. Republicans still have a mandate to block tax increases, he said, even for the richest Americans. “We’ll have as much of a mandate as he will,” Boehner said, referring to the president.
- Political risk is alive and well in the U.S. The U.S. economy continues to add jobs, housing appears to be on the rebound and consumer confidence is at a four-year high. But absent any real change in Washington, gridlock will continue to make progress on economic policy (including budget negotiations) difficult.
- That means continued pressure on Canadian exporters to rely less on U.S. consumers. Business leaders understand why finding ways to serve emerging markets like China is in their best interest. As long as U.S. economic policy is hamstrung by an unwillingness to act in a bipartisan fashion, the U.S. recovery will be weaker than it might be.
- There’s still reason for optimism on U.S.-China relations. Romney’s promise that he would label China a currency manipulator on day one of his new administration was reckless. The global economy is more stable as a result of this not being an issue today.
Yes, this is a glass-half-empty view of things.
It’s not that I think the president doesn’t deserve a second term. I expect historians to credit Obama and his administration for having prevented a far worse economic downturn (one comparable to the Great Depression) after the financial crisis in 2007-08.
But the deep political divisions that led to the debt-ceiling fiasco and eventual U.S. credit rating downgrade in 2011 remain firmly in place. And I don’t see much reason to believe they won’t be front and centre for four more years.
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