Ashburton: Obama's half-term report card

With the makeup of the 112th congress now laid out, what can be taken from the outcome? Well, there were no real shocks in the results. The Republicans took control of the House of Representatives but did not manage to regain control of the Senate, this is in-part due to the rolling 6 year terms of the Senators. If more of the Senate had been up for election, the outcome could have been very different.

So what are the likely outcomes with a more balanced level of power? While many will now see Obama as a lame duck, it is worth bearing in mind that for both Clinton and Bush’s final terms in office they did not have control of either of the houses of congress and yet managed to move legislation forward. The split makes it harder for the Obama government to pass unfavourable bills, so it forces a more collaborative based approach. Historically, this has been seen as a positive for markets as it removed the administration’s ability to medal with business affairs. However, we have not seen an economic equivalent situation since the Great Depression, and it could be argued the country needs strong leadership that can pass legislation which may not always carry favour with the markets or public, but are none-the-less necessary.

In terms of policy, where does the road ahead now lead? With the republicans carrying more weight, the debate surrounding the extension of the Bush tax cuts could rise back to the surface. Other tax measures that will likely come under fire are Obama’s plans to increase taxes on overseas profits. With over 40% of the S&P revenues coming from abroad, this can be seen as a positive for the large multinationals based in the US. The Republicans have been very vocal that they oppose this move.

The obvious point of contention will be the Obama healthcare bill, around which he centred his election campaign. While it is highly unlikely that this can be repealed, the finer points of the bill can still be fought out. Such efforts should be to the benefit of the healthcare providers and other medical device manufacturers, as they may be able to reduce some of the tax burden they were going to absorb over the future years. With a bill of this size it is hard to identify a starting point, but the Republicans will probably push the Democrats on the most controversial parts of the law, namely requiring insurance for all Americans. This is a battle that could go on for years.

There are a few areas in which the two sides can work together to drive policy forward. One such issue being the promotion of free trade agreements with South Korea, Colombia and Panama. These are policies that were approved by President Bush in his final term, although an area that Obama has not pushed forward, seeing the high level of local unemployment. These agreements will again be beneficial to the US based blue chip multinationals. Further, it will aide Obama’s plans of increasing US exports, although it has potential to rile labour unions.

In the future, it looks like an uphill battle for Obama to regain the hearts and trust of the American people. However, it is fairly well understood that he was handed a very difficult economic situation to guide the nation through, and some of the moves he has made will certainly shape the recovery. As of yet, none of Obama’s measures have made a meaningful impact and he has been seen as failing to connect with the general populous on this matter. Obama has to cover a lot of ground over the next two years with a reduced level of control.