Washington deadlock: Foreign reaction morphs from amusement to alarm (+video)

America’s image as a leader is taking hits around the world over the government shutdown, and now a looming first-ever default is adding real alarm over what it could mean for the global economy.

By , Staff writer

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    A woman walks outside a securities firm in Tokyo Monday. Asian markets were weaker this week after heated political rhetoric from the US raised worries that the partial shutdown of the American government could bring the world's largest economy close to defaulting on its debt.
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When Egyptian diplomat Mahmoud Karem arrived at Washington’s Dulles International Airport last week, he was shocked to find that the US government shutdown had closed all but a few passport control stations.

The result was very long lines – and a black eye for America, Ambassador Karem says.

“It’s true that two other international flights landed at about the same time, but I would expect Washington to be prepared for that,” says Karem, a member of the Egyptian National Council for Human Rights. Instead, “We had to stand in the line for three hours, there was no place for the old people to sit, and children were crying,” he says. “It was very bad for America’s image.”

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America’s image is taking hits across the globe as a result of the government shutdown – and now a looming first-ever default is adding real alarm to what to this point have been mostly expressions of annoyance, incredulity, and even humor over the political dysfunction gripping the world’s sole superpower.

As Christine Lagarde, managing director of the International Monetary Fund, said in a speech last week, “The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.”

Blasting what she called the “political brinkmanship” in Washington that threatens world markets as well as American families, Ms. Lagarde pronounced it “mission-critical that this be resolved as soon as possible.”

Around much of the world, the shutdown and threatened default are feeding already growing doubts about America’s global leadership role, while confirming for many, especially in Asia, America’s retreat from its top ranking in the world economy.

Asia stood out as a kind of bull’s eye of the global concern over US political paralysis and economic fragility in part because President Obama canceled attendance at two key Asian summits this week as a result of the shutdown.

At a White House press conference Tuesday afternoon, Mr. Obama said he recognized that an empty US chair at international summits “hurts our credibility around the world.” Acknowledging that much of the world is watching the “drama” in Washington, he added that the political standoff “makes it look like we don’t have our act together.”   

But another reason for Asia’s interest is that China, which holds more US debt than any other country, is starting to express alarm at the prospect of a US default on its debt. “The US needs to consider the global impact” a default would have, Chinese Vice Finance Minister Zhu Guangyao said Monday.

“The Chinese side feels the US needs to take realistic and resolute steps to ensure against default on the national debt,” Mr. Zhu said, according to a report in the official Xinhua news agency. “We naturally are paying attention to financial deadlock in the US,” he added, “and reasonably demand that the US guarantee the safety of Chinese investment there.”

Joining China in expressing concern over the prospect of a default is Japan, which is the country with the second-largest holding of Treasury debt.

Some international experts say any damage to America’s image can be short-lived – as long as the shutdown ends soon and default is avoided.

Obama echoed that thinking at his press conference, saying much of the world would chalk the experience up to “the usual messy process of American democracy” if the government reopens soon and the debt ceiling is extended.

But others worry that there is also a more long-term impact from the spectacle of a dysfunctional America, no matter how long the show lasts.

“This shutdown occurs at the same time there’s a debate about economic models in the world, and when you have the leader of one of those models – the market-oriented model with a democratic political system – in political disarray, it allows the proponents of the other models to say to the world, ‘Our model is better than their model,’” says Bill Reinsch, president of the National Foreign Trade Council in Washington.

China is the primary advocate of a “different economic model” from the one that has dominated globally in recent decades on the wings of American leadership, Mr. Reinsch says. “You can bet the Chinese are out there pointing to our disarray and suggesting to other countries that maybe democracy and the free-market system are not the best models to follow,” he adds.

Obama seemed to recognize the damage to America’s leadership by noting that the US president’s no-show at two summits that are important components of the international system means the system’s key architect and advocate was absent.

Noting that the US “sets a lot of the international agenda,” Obama said, “It’s almost like me not showing up to my own party.”    

As for the thinking that America’s image can recover quickly if the turmoil is short-lived, Reinsch says he’s not so sure.

For one thing, the world is different from where it was 17 years ago, the last time the US reached a government shutdown. Doubts about America’s global leadership are more widespread, and China is a much more formidable economic rival to the US than it was in the 1990s.

“We are still on top economically, but other countries are catching up, and that makes the stakes much much higher this time around,” Reinsch says. “It’s going to take longer to restore a damaged reputation.”

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