U.S. "soft power" takes a hit over government shutdown

By Paul Taylor

PARIS (Reuters) - A picture spoke volumes about the United States' loss of global prestige and influence due to the shutdown of its government in a partisan standoff over the federal budget and debt.

Chinese President Xi Jinping and Russian President Vladimir Putin beamed front and centre in the family photograph of Asian leaders at last week's Asia-Pacific Economic Cooperation (APEC) summit in Bali.

U.S. Secretary of State John Kerry, standing in for an absent President Barack Obama, detained at home by protracted budget negotiations, waved forlornly from the edge, about as far from the centre as possible without falling off the platform.

For an administration that has focused its foreign policy on a "pivot" to Asia, the world's most economically vibrant region, this may be more than a momentary setback. And not just in Asia.

Joseph Nye, the Harvard professor who coined the term "soft power" to describe a nation's ability to wield influence through its culture, values and governance rather than by force, said the United States had suffered a serious blow from the shutdown.

"It's clearly very damaging for American soft power in the sense that the reputation for effective management of government and of the world's reserve currency are hurt," Nye told Reuters.

Foreign governments and investors, from China to the Middle East, were bound to ask whether they should hold so much of their reserves in U.S. Treasury bonds and dollars, he said.

Obama and Congressional leaders agreed a temporary fix on Wednesday to keep the government running until January and raise the national debt ceiling, hours before it was set to lose the authority to borrow - a prelude to a potential default.

The president acknowledged on Thursday that the 16-day shutdown had hurt Washington's global position.

"Probably nothing has done more damage to America's credibility in the world, our standing with other countries, than the spectacle that we've seen these past several weeks," he said in a speech at the White House. "It's encouraged our enemies, it's emboldened our competitors, and it's depressed our friends who look to us for steady leadership."

Nye said the fiscal crisis had compounded damage to trust in the United States from revelations about the National Security Agency's tentacular global Internet surveillance by fugitive former intelligence consultant Edward Snowden.

"On culture and values, we are doing pretty well," he said. "But on government policies, whether on surveillance or on our management of the world's most important reserve currency, that's where the danger is."

CHINA CASHES IN

While Obama was marooned in the White House, Xi and Premier Li Keqiang swept around southeast Asia, dispensing goodwill, big investments and promises of surging trade, including with U.S. allies such as Indonesia, Thailand and Malaysia.

The Chinese state news agency Xinhua excoriated the United States for putting international financial stability at risk with domestic "political brinkmanship". The lesson for America's creditors was that "U.S. Treasury bonds may no longer be a safe investment".

Gloating over Washington's paralysis, another Xinhua commentary said it was "perhaps a good time for the befuddled world to start considering building a de-Americanised world".

The risk of severe damage to the global economy from the U.S. government paralysis and a possible debt default - now banished for a few months at least - dominated meetings of the Group of 20 world leaders in St. Petersburg, Russia, last month and G20 finance ministers last week in Washington.

Putin berated the United States publicly over the uses and abuses of its power as he engineered a diplomatic deal to avert a U.S. military strike on Syria.

"Millions around the world increasingly see America not as a model of democracy, but as relying solely on brute force, cobbling coalitions together under the slogan 'you're either with us or against us'," he wrote in the New York Times on September 11.

CORROSIVE

Former U.S. policy practitioners said the spectacle of a chronically divided political system unwilling to compromise on the big issues of taxation, public spending and borrowing had weakened the country's international sway.

"There is no question in my mind that this has a corrosive effect on American authority and influence in the world," said Samuel Berger, who was national security adviser to President Bill Clinton.

"For the president not to be able to go to Asia for the East Asia summit is a blow, with President Xi being able to be there, be triumphant, announce a $50-billion development fund, makes other Asian nations very uncomfortable about our steadfastness," Berger, who now chairs a global strategy consultancy, the Albright Stonebridge Group, told Reuters.

For U.S. allies in the Arab world and Israel, acutely sensitive to any fluctuation in American engagement and deterrence, the signals have been both confusing and worrying.

"When you look at how the Saudis are sensitive over this (U.S.) flirtation with Iran, at what has happened in Syria and Egypt, the sense that the United States is the only superpower in the Middle East is slowly fading away," said an Arab diplomat serving in Washington, who spoke on condition of anonymity.

Arab governments and private fortunes are heavily invested in U.S. Treasury instruments and the stock exchange, so there are financial as well as geopolitical grounds for anxiety.

In a region where hard power counts for more than persuasion, Obama has presided over a U.S. military withdrawal from Iraq and soon from Afghanistan, and avoided force against Syria over the use of chemical weapons, partly due to divisions in Congress.

That has fuelled doubts among Israelis, Saudis and others about his willingness to prevent Iran from acquiring a nuclear weapons capability or wielding growing influence from Baghdad to Beirut.

With the United States increasingly independent of Middle East energy supplies due to its domestic shale gas bonanza, traditional clients fret that its commitment to their security is bound to diminish.

Similar concerns have surfaced in Central America. Javier Trevino, a former Mexican deputy foreign minister who sits in the lower house of Congress, said the United States' soft power was being compromised by the U.S. legislature's "myopic", parochial outlook, and that U.S. foes were benefiting.

"By not being able to quickly resolve internal political issues, it opens a window of opportunity for the United States' adversaries to push forward with their agendas," he said.

"The wrong signals are being sent to Russia, China, North Korea and Syria."

For Europeans weary of being lectured by the United States about their tortured management of the euro zone's debt crisis, and the risk it posed to the world economy, a little Schadenfreude was irresistible.

"If this had happened in Europe, what wouldn't they say about Europe?" Jose Manuel Barroso, president of the European Commission, told the Euractiv news service.

"Imagine that we would have a shutdown at the level of EU institutions. What would they say about Europe? What caricatures there would be. What shaming there would be!"

LONG TERM, SHORT TERM?

Yet for all the criticism and hand-wringing, historical precedent suggests the damage to U.S. influence may not be enduring, given the dynamism of its innovative economy and the attraction of its popular culture.

The last U.S. government shutdown in 1996, of similar duration in a similar standoff between a Republican-dominated Congress and a Democratic president, caused barely a hiccup in Washington's global ascendancy, which was then at its peak five years after the collapse of the Soviet Union.

"I tend to be with the Mark Twain line on this: that the reports of America's decline have been grossly exaggerated," said James Steinberg, a former deputy secretary of state who served in the Clinton and Obama administrations.

"I teach history now and ... there have been other times in American history where polarisation has been great, where there have been deep divides and where we have been able to overcome them," he said, citing the civil war of the 1860s.

One senior European policymaker, Swedish Finance Minister Anders Borg, said the longer-term impact of this shutdown may be monetary rather than political, but with strategic consequences - should Beijing lose its appetite for holding dollar reserves.

"Because it is an enormous advantage to be a reserve currency, it seems madness to even consider creating uncertainty around that status," Borg said. "For them (China), it must mean that at some time in the future they must leave the dollar."

(Additional reporting by Arshad Mohammed and Jeff Mason in Washington, Martin Petty in Bangkok, Simon Johnson in Stockholm, Adam Rose and Jonathan Standing in Beijing and Dave Graham in Mexico City; Writing by Paul Taylor; Editing by Alastair Macdonald)