America has a rich tradition of bailing out Europeans when they are in dire straits. With Lend-Lease to Britain during WW2, and later Marshall Aid under President Truman, there are many historical examples of Uncle Sam opening his purse-strings for his poorer cousins across the Atlantic. But which of the two modern presidential candidates would be best for Europe? Both are using historical analogy heavily in their campaign rhetoric. The Obama campaign says the speech at Cuyahoga Community College Metropolitan Campus in Cleveland, will “outline the choice in this election: between a vision for moving our country forward…and Mitt Romney’s vision, based on the same failed economic policies that brought on the worst crisis since the Great Depression.” In the Romney Programme, the Governor states “History shows that a recovery rooted in [Romney’s] policies.. will create about 12 million jobs in the first term.” As the world’s leading economic power, their domestic policy will have just as dramatic effect on the eurozone.
Trade policy
Obama’s National Export Initiative (NEI) may have increased goods and services sold abroad by 32 percent since 2009, but its intention is to sell ‘billions of dollars of products… stamped “Made in America,” not to give USAID to Europe’. The proposed 2013 budget envisages a $19m increase over 2012’s multimillion dollar funding level, to $432m. It is split between five institutions, all designed to help small and large businesses overcome hurdles to foreign regional markets : the Ex-Im Bank, the US Trade and Development Agency, the Office of the US Trade Representative, the US International Trade Commission and the Overseas Private Investment Corp (OPIC). Together they “fight to eliminate barriers on sales of US goods and services; and improve the competitiveness of US firms.”
Particular emphasis is laid on strengthening domestic and international trade rules. The remaining UK banks yet to be accused of money laundering should ensure their ledger-books are clean.
Lacking the administrative capacity to create the same detailed statistical policy blueprint, Romney’s campaign focuses on forming a strategic trading block with South America and with the Asian countries bordering China, the ‘Reagan Economic Zone’. This magnetically attractive regional pact of “like-minded nations around the world” will “codify principles of free trade.” Romney asserts the president “was only recently dragged into supporting individual trade agreements,” where he sees himself as a free trade pioneer.
To bring America’s big rival in line, he proposes to “use unilateral and multilateral punitive measures to deter unfair Chinese practices.” Theft of US firms’ intellectual property is a major concern for those who outsource labour to China, but Romney is more concerned with their ability to undercut US prices with cheap exports. Would European support be required to enact sanctions on certain Chinese manufactures? What about the corporations that rely on cheap machinery? Consumers who buy Chinese commodities would suffer from raised prices if tariffs were imposed. His proposal to “designate China a currency manipulator and impose countervailing duties” is extremist but would have little effect outside US-renminbi currency exchange.
Energy and environment
The two parties are even more polarised in their environmental policy. Romney is set against “particular politically favoured approaches” to energy like windmills and solar panels, with no demonstrable effect at increasing efficiency. Obama reaffirms the commitment he made in December 2009, and proposes to phase out a number of tax preferences for fossil fuels. Evidently this depends on the proposal passing Congress and the Senate. Romney intends to, quote, “Amend the Clean Air Act to exclude CO² from its purview,” and speed up licensing processes for approved fossil fuel and nuclear plants. David Cameron’s absence from the 2011 Rio summit suggests ecological issues are not top of his agenda, but all 192 nations present reaffirmed commitments to phase out harmful subsidies to fossil fuels. Romney wants to revoke this commitment.
The workforce
However, the Republican candidate does want to be a part of the high-skilled European labour market. He proposes raising visa caps on high-skilled workers, and grant permanent residency specifically to “eligible graduates” with “advanced degrees in maths, science and engineering.” Students from Paris’s HEC and Barcelona/Madrid’s LESE could take advantage of the opportunity to earn record bonuses as captains of industry; but their skills might be needed in their home country.
Obama advocates investing in domestic skills, earmarking large sums to research bodies: $708m for the National Investment Standards and Technology labs; $128m in Hollings Manufacturing Extensions Partnership; $21m to the Advanced Manufacturing Technology Consortium. He aims to enhance standards and technologies in high-tech industries like robotics, nanotechnology and cyber-security. There is, though, an equivalent EU organisation. The Research and Innovation programme, Horizon 2020, will channel €1.8bn into developing microchip technology. With the semi-conductor industry forming 10 percent of global GDP, there is everything to play for.
Monetary policy and regulation
Much of the Republican campaign centres on the fact that the Democrats have failed to restore the American economy. The Governor says, “The Dodd-Frank Act missed the mark on housing and ‘too-big-to-fail’ financial institutions, but raised financing costs for households and small and mid-sized businesses.” Romney’s proposal to repeal the 2,319-page Dodd-Frank Act after its tortuous path into US law might be unrealistic.
As a counter-factual construction, it is interesting to envisage. European legislation regulating over-the-counter (OTC) trade in derivatives has currently been stalled by lobbying traders. If America was to refute its proposals it would not be necessary to enforce EU compliance in order to keep trading with them. Proprietary trading could restore the systemic instability that caused the crisis, but some banks would no doubt appreciate being able to freely lend to riskier investment vehicles. After all, hedge funds have been pronounced safe again in an FSA report from March 2012, which makes the Volcker rule a bit redundant.
In the Romney Plan for Economic Recovery, Growth and Jobs, he blames “uncertainty over policy – particularly over tax and regulatory policy” for limiting “both the recovery and job creation.” He cites Congressional Budget Office (CBO) predictions for an average of 2.5 percent GDP growth. Because Republicans estimate their tax reform proposals would increase GDP growth by one percent, and create another seven million jobs, he says “thus, under the Romney programme, actual real GDP growth will be stronger over the decade,” an estimate he puts at 3.5-4 percent. If they are correct and tightening America’s fiscal belt will inevitably stimulate private sector growth, all the USA’s trading partners would benefit.
However, Barclays analysts forecast that a further round of quantitative easing or bond buy-back schemes like Operation Twist may be unnecessary. This would put an end to destabilising rates of inflation. Outside the European CDS market in sovereign debt, this is good news for all those who depend on the dollar as a stable peg in the currency exchange markets. Barclays analysts also report that there was also stronger-than-expected retail sales and jobless claims data recently, which would boost Obama’s popularity. Provided America maintains its close European relations – and continues to fulfil commitments to international lending institutions like the IMF, as Obama has promised – his re-election would probably be of net benefit to the EU trading partners. Romney seems to be more in favour of building bridges with East Asian and Latin American countries, and is therefore more of an unknown quantity.
It does seem likely that many financial and commercial businesses would be attracted to establish offices and manufacturing plants in America if Romney gained approval to reduce corporation tax from 35 percent to 25 percent. His plan to repeal the corporation Alternative Minimum Tax would bring SMEs onside. Both he and Obama want to enhance corporate research and development (R&D); Romney through strengthening tax credits; the current President by increasing non-defence R&D spending by five percent. Reducing defence commitments is not Republican policy, which proposes specifically to disarm North Korea.
Which presidential successor?
Casting themselves alternately as the natural successors to Roosevelt and Reagan, Obama and Romney ensure in their public pronunciations to always put America’s interest first. But US history is characterised also by its leading world role, in which the European powers played a key part. Obama’s continued advocation of reducing the debt burden through deficit spending, and growth and investment incentives, is in the same tradition of EU ‘welfare capitalism’ or social democracy. Romney’s businesslike approach to balance sheets is more derivative of Milton Friedman, for whom there was no economic inefficiency where all contenders were allowed to compete freely. The question of whether or not the eurozone could survive in a free market could become all the more relevant if it starts to disintegrate.