Obama looks beyond crisis to face emerging adversaries

President Barack Obama tried to lift his nation’s gaze beyond its current economic malaise and towards the challenge posed by rising economic rivals in his State of the Union address on Tuesday.

While acknowledging the urgent need to bring back jobs and reignite growth, Mr Obama cast America’s economic stasis against the breakneck rise of China and India, as he detailed a plan to ensure America “wins the future”.

“The steps we’ve taken over the last two years may have broken the back of this recession – but to win the future, we’ll need to take on challenges that have been decades in the making.”

Urging Americans to rally in the face of adversity, Mr Obama laid out an agenda to make the US more competitive.

“We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on earth to do business.”

But his vision, articulated a week after hosting Chinese President Hu Jintao, was laden with the prospect that the US could lose its title as the world’s largest economy within a decade.

Forty years after President John F. Kennedy used the same pulpit to rally Americans around the goal of beating the Soviets to the moon, Mr Obama called for an Apollo-like effort to rejuvenate US economic preeminence.

He called for stepped up research and infrastructure spending, a green energy rev­olution, increased exports and a simplified tax code.

“At stake is whether new jobs and industries take root in this country or somewhere else,” he said.

There is a growing realisation in the US that it must step up or get left behind, according to Ricardo Ernst, an expert on global logistics and professor at Georgetown University’s business school.

While many have criticised Mr Obama’s efforts to improve competitiveness as ignoring the damage done by the loose regulation that led to the financial crisis, Prof. Ernst said the rigors of global­isation make it essential.

“Globalisation does not subsidise inefficiencies, therefore the only way you can take advantage of globalisation is by being competitive.”

“It is a very, very dangerous position to be in, not to play the game. And although it is very difficult today to define what an American product is, and what is the value added by Americans, at the end of the day you need to be a player.”

But the scale of the challenge is immense, and avoiding beggar-thy-neighbour policies that strain relations with others will demand tough reforms at home.

According to Steven Ricchiuto, chief economist at Mizuho Securities, Mr Obama’s biggest challenge may be the hundreds of lawmakers who listened live to his speech.

“There are things that could be done to correct a lot of these problems, the question is whether or not there is the political will in Washington to make the hard decisions,” he said.

Nowhere is this more evident than in efforts to tackle budget deficits – with both Republicans and Democrats shying away from deep cuts to medical aid and retirement entitlements.

Mr Ricchiuto said that significant measures to tackle future spending could “reverse competitiveness pressures” and provide room for additional stimulus “to help get the economy back up to the level that it needs to get back up to”.

“The problem is that the group that we have in Washington right now is incapable of addressing the issues.”

While Mr Obama’s attempt to shift the focus away from the immediate pressures may be politically astute, it could also prove a bold gambit for a President who, according to the Federal Reserve, will face unemployment rates of 6.8 to 7.5 per cent by the 2012 elections.

While that would be much lower than the 9.4 per cent unemployment levels seen today, it would be uncomfortably high across much of the country.

And if the joblessness lingers in many key battleground states that gave Mr Obama victory – Indiana, Florida, Nevada, North Carolina and Ohio – his call for unity may prove to be ephemeral.