Foreign challenges for Obama

After a long and contentious election campaign, U.S. President Barack Obama has his work outside the United States cut out for him. During his first term, Obama witnessed global developments that strained world economic growth in different ways. These included the sovereign debt crisis in Europe, resulting economic slowdown in Asia and political instability in the Middle East. In addition, the president’s administration confronted very different issues with America’s neighbors, Canada and Mexico. These developments will continue to confront the president as he embarks on his second four-year term.

In the U.S. political system, presidents must work with Congress to shape domestic policy. Already, President Obama’s focus has turned to addressing the so-called “fiscal cliff,” which threatens the U.S. economy with another recession just as consumer confidence and jobs growth are picking up. In addition, the president will have to negotiate with a Congress still dominated by rival Republicans over extending the national debt ceiling in January. Both of these domestic issues are important to the world, because recession in the U.S. will hurt global trade.

But, when it comes to foreign policy, U.S. presidents are given more executive power to formulate a course of their own choosing. President Obama will need to focus on the coming storm from Europe that threatens America’s shores. For the U.S., the stakes are too high not to get involved: the U.S. and the European Union trade $700 billion in goods and services a year, making it the world’s biggest trading relationship.

The economic relationship with China is just as important. U.S.-China trade totaled $531 billion in 2011, and is growing. China has seen economic output shrink to 7 percent after years of 10 percent annual growth. For China, the slowdown comes just as U.S. companies are expanding Chinese operations. First, Obama will have to mend relations with the new leadership in Beijing. It’s become a American election tradition for both presidential candidates to bash China for “stealing American jobs,” through currency manipulation or outright theft of intellectual property. Obama realizes that China presents more of an opportunity for the U.S. than a challenge. On the issues brought up during the election campaign, there has been more progress than many Americans realize: China’s currency has appreciated during the past four years, enforcement of intellectual property rights is starting to pick up.

The Middle East is a greater challenge for Obama. Last year, his administration tightened sanctions on Iran over its nuclear program, which the U.S. accuses Iran of developing for military purposes. Iranian oil exports have shrunk as a result, hurting Iran’s economy and fueling inflation there. But it also led to a spike in gasoline prices at home in the United States, which was then used as fodder against the president by Republicans in the run-up to the election. So far, Obama has resisted pressure from Israel to use U.S. forces to strike Iran.

He has also put pressure on Israel not to launch its own strikes. This is a powder keg that the president needs to defuse, not escalate. One-fifth of the world’s oil exports pass through the Strait of Hormuz, and Iran has threatened to block the 20-mile-wide waterway if it is attacked. With “Arab Spring” protests spreading to U.S. allies in the Persian Gulf - Bahrain, Kuwait and even Saudi Arabia - the potential for regional instability and/or disruption of oil output grows exponentially if the United States makes a wrong move.

Finally, Obama will have to address ties with America’s neighbors. Canada is the No. 1 source of imported oil for the United States. Last year, the Obama administration blocked an extension of the Keystone XL pipeline that would help deliver oil from Canada’s controversial but highly productive “oil sands” to the Gulf of Mexico and, ultimately, to world markets.

That move was generally interpreted as an election year ploy for the president to shore up support among environmentalists. The State Department is now reviewing an altered pipeline route and could approve an extension in 2013. Either way, the energy relationship between the two countries is growing, and Obama will foster this during his second term.

Immigration is sure to be a priority when the U.S. president meets with his newly elected Mexican counterpart, Enrique Pena Nieto, later this month. During Obama’s first term, the number of Mexican immigrants, both legal and undocumented, actually fell due to the recession. While the president supports immigration reform that may include more worker permits for Hispanic workers in the U.S., he can only get that done with the cooperation of Congress - unlike other foreign policy priorities.

Obama has some major international challenges to contend with as he embarks on his second term: crisis in Europe, slowdown in Asia, instability in the Middle East and shoring up relations in North America. How he deals with each could have profound effects on the global economy.

*The author is a CNN anchor and chief business correspondent.

by Ali Velshi