WASHINGTON, DC-- The global financial crisis is fundamentally reordering U.S. domestic politics, with wide-ranging foreign policy implications. For starters, the crisis will likely increase pressure for the United States to withdraw from Iraq, for two different reasons. First, the government will be far deeper in debt next year than almost anyone imagined a year ago, creating a political environment in which spending billions a month in Iraq is increasingly untenable. Second, the financial crisis helped touch off this fall's Democratic landslide, producing a White House and Congress more committed to withdrawal from Iraq than their predecessors. In both direct and indirect ways, therefore, the economic environment is making a speedy drawdown of U.S. troops more likely.
The financial crisis has also forced President-elect Barack Obama to temper an earlier pledge to increase U.S. foreign development aid. For much of the presidential campaign, this seemed like a signature element of his proposed foreign policy strategy, an effort to recast the Bush administration's freedom agenda as an agenda for economic dignity and justice. Such an effort would have fit well within the modern American liberal foreign policy tradition, which has historically seen government-led anti-poverty efforts as essential to stabilizing and promoting democracy, from Harry Truman's Marshall Plan to John F. Kennedy's Alliance for Progress. Given the strong interest in such efforts among European leaders like British Prime Minister Gordon Brown and French President Nicholas Sarkozy (and particularly his foreign minister, Bernard Kouchner), development aid might have become one of the defining foreign policy issues of the coming years, and an important new element of the struggle against jihadist terrorism. But right now, at least, it looks like a potential casualty of the financial crisis.
"The crisis may produce even greater skepticism toward globalization, which manifests itself in growing protectionism and anti-immigrant sentiment."
The financial crisis may also complicate another Obama desire: to improve America's reputation abroad. Polling already suggests that many around the world blame the United States for the global economic crisis, which has further intensified international hostility to U.S.-style unfettered capitalism. In the long run, perhaps, the trend toward more regulation by Washington-and an economic model that looks more like the one that existed in the United States in the middle of the twentieth century-will actually improve America's reputation. But in the short term, Obama's efforts to alleviate anti-Americanism may be undermined as the financial crisis offers the world yet another reason to resent U.S. influence.
Finally, if the financial crisis is shaping the way the world sees America, it may also shape the way Americans see the world. For many foreign policy and economic elites, the crisis has shown that in a globalized economy, preventing financial contagion requires greater economic coordination between nations, and perhaps even global financial rules enforced by stronger international institutions. Average Americans, however, may learn the opposite lesson. The crisis may produce even greater skepticism toward globalization, which manifests itself in growing trade protectionism and anti-immigrant sentiment. There may be an interesting parallel to the 1930s, when isolationism and protectionism grew among the general public, but elites also began to recognize the importance of international economic coordination. This recognition eventually led to the creation of the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade, but only after a world war. Perhaps this time as well, a financial crisis will ultimately produce farsighted U.S. foreign policy. But for the time being, it seems likely to make U.S. foreign policy considerably more difficult during what was already an extremely difficult time.