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United States Debt Downgrade Won't Have Much Short-Term Effect on Foreign Policy
Jessica Rettig

HOME > WORLD

 

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Despite foreign criticism, America should maintain its world influence for now

Blame abounds in Washington over the country's downgraded sovereign debt rating. So, it's not surprising that other world powers, like China and Russia, are weighing in also.

China's state-run newspaper, Xinhua, ran a sharp editorial over the weekend scolding the United States for not having its economic and political house in order. "To cure its addiction to debts, the United States has to reestablish the common sense principle that one should live within its means," the article said, later adding, "A little self-discipline would not be too uncomfortable for the United States, the world's largest economy and issuer of international reserve currency, to bear."

And in a similarly pointed statement, Russian Prime Minister Vladimir Putin compared the United States to a parasite. "The country is living in debt," Putin said on Monday. "It is not living within its means, shifting the weight of responsibility on other countries and in a way acting as a parasite."

Such public comments suggest that China and Russia are taking advantage of their grandstanding moment as a chance for the competing powers stick it to America. But, it's not likely, experts say, that the downgrade itself will do much to change America's foreign policy influence with these nations in the near future.

The recent S&P downgrade is just another excuse for foreign countries to call attention to America's problems, but the weaknesses have already been apparent for a while, says Francis Warnock, an international finance professor at the University of Virginia and fellow at the Council on Foreign Relations. "The downgrade is important mainly for anyone who wasn't paying attention the past year. The Chinese and Russians understand our problems and weaknesses. They don't need S&P to tell them. They'll use it to further chip away at our credibility, but we've made that very easy for them," he says.

The recent criticism from China in particular can also be read as frustration, says Nicholas Consonery, an Asia analyst at the Eurasia Group, a nonpartisan research firm headquartered in New York. China, after all, remains the United States' top foreign creditor, and as such, the success of its economy depends significantly on the stability of U.S. Treasuries and the U.S. dollar. "Their exposure to the dollar is a big vulnerability for them," he says. "They really don't have many options outside of the dollar exposure that they have. So, what you've seen throughout the past year is what we're going to continue to see, which is basically that Beijing expresses frustration, but they're not really able to change the fundamental fact that Beijing and the United States are in this together."

But even if the United States does maintain its high international regard for now, that doesn't mean the superpower is in the clear.

What the recent commentary might achieve in China, for example, is a shift domestically, as China's major investors in U.S. Treasuries are encouraged to diversify their assets down the road, says Kenneth Lieberthal, a senior fellow in foreign policy at the left-leaning Brookings Institution. Also, it could change how people around the world view America moving forward. "The way we have handled this recently -- the, frankly, embarrassing circus that we have witnessed -- has an impact in China and elsewhere in that it really affects negatively their view of America's future potential," Lieberthal says. "What's happened recently doesn't have an effect that you can measure by Tuesday...but when people think about the future, they're changing their odds making, and not for our benefit."

Making further cuts to defense spending to dial down the nation's debt -- which could happen later this year -- could also have severe consequences for America's future standing in the world, according to Warnock. "The expected cuts in the defense budget will surely erode our influence -- much more than S&P can," he says.

 

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