The president's in-tray: six challenges facing Obama

Fiscal cliff:The looming Fiscal Cliff means there will be no honeymoon period for the re-elected president. Congress and the White House have been at loggerheads over moves to balance the federal budget since the Democrats lost control of the House of Representatives in 2010.

Without bipartisan agreement over the next eight weeks, a $600 million package of tax increases and spending cuts will be activated automatically on January 1st – including the ending of a series of reliefs aimed at wealthier Americans that were introduced under the last Bush administration.

The Congressional Budget Office and private sector economists have warned that such a step – amounting to about 3.5 per cent of GDP – would tip the US economy over a cliff and into recession.

To make matters worse, the federal government will hit its $16.4 trillion debt limit at about the end of the year. Agreement on increasing that ceiling is essential if Washington is to avoid the prospect of default in early 2013.

All of this has to be faced by a lame duck Congress when it reconvenes next week, with newly elected senators and representatives not taking their seats until the new year.

And the election has done nothing to change the broader political landscape with Democrats retaining the Senate and Republicans keeping their grip on the House.

On the plus side, the key players on either side remain in place and are well versed in the issues. Exit polls have also bolstered the drive for a balanced deal, with exit polls on Tuesday showing that six out of 10 American voters supporting some tax increases.

Markets are also in no mood for dithering. Concern over the impasse saw stock markets and the dollar weaken yesterday. Separately Fitch Ratings said the US will likely lose its AAA credit rating in the absence of accord, echoing a previous warning from rival Moodys.

The third major ratings agency, Standard Poor’s, has already downgraded the US rating to AA+ from AAA after the acrimonious row over raising the debt limit in the summer of 2011.

Even if a comprehensive accord must await the incoming Congress, interim measures will have to be approved by year end. The clock is ticking. DOMINIC COYLE

Divided Congress

President Obama faces a divided Congress, just as he has since the mid-term elections in 2010 overturned a Democratic majority in both Houses dating from 2008. The make-up of the new Congress for the two main parties will be: House of Representatives (435 seats): 232 Republican – 191 Democrat; GOP majority of 41. Senate (100 seats): 45 Republican – 51 Democrat; Democrat majority of 3.

In 2008 when Obama was elected first, Democrats had working majorities in both houses (257 congressmen and women, and 57 senators) meaning initiatives by the White House were virtually guaranteed congressional support. That changed in the 2010 mid-terms when the Republicans gained a 49-seat majority in the House of Representatives, leaving the Democrats with a majority only in the Senate and resulting in legislative gridlock.

Obama’s challenge will be to engineer detente with a wounded, angry and almost certainly, at least initially, unco-operative Republican House of Representatives. The omens are not great.

House speaker John Boehner told party faithful at an election-night rally he and fellow Republicans had “offered solutions and the American people want solutions and tonight they responded by renewing our House Republican majority”.

While Boehner, who has led obstruction to presidential initiatives for the past two years, said he would work with "any willing partner", he warned that he would continue battling Democratic moves to raise taxes on the rich. "With this vote, the American people also made clear there's no mandate for raising tax rates," he said. PETER MURTAGH

Foreign policy

Mitt Romney criticised President Obama for what he considered grievous foreign policy errors: failing to halt Iran’s progress towards a nuclear weapon; the continued reign of Bashar al Assad in Damascus; “putting light of day” between the US and its “closest ally” Israel; and an alleged cover-up of incompetence in the killing of four Americans in Benghazi on September 11th.

These issues will continue to pre-occupy Obama.

Obama has brought the UN Security Council and EU on board for the toughest sanctions ever against Iran. The sanctions are causing severe hardship in the Islamic Republic, and there were pre-election reports that Tehran might be willing to resume negotiations.

A deal would probably involve allowing Iran to enrich a limited amount of uranium to low levels for use in power reactors, in exchange for more openness to inspection.

As Romney pointed out, more than a year has passed since Obama demanded that Assad step down, to no effect. With Syrian fatalities in the tens of thousands, Washington’s non-intervention policy may not be tenable indefinitely.

Obama may have to rein in Israeli prime minister Binyamin Netanyahu’s eagerness to bomb Iranian facilities. His poor rapport with Netanyahu will make it more difficult for Obama to relaunch the Israeli-Palestinian “peace process”, which died during his first year in office. Palestine is one of the great neglected dossiers of Obama’s first term. His supporters, and the Europeans, hope he’ll do better now that the pro-Israeli lobby AIPAC is no longer a threat to his re-election.

The Benghazi attack symbolised the risk of chaos and anti-American extremism which threaten to erupt at any moment, not just in Libya but in Egypt, the Maghreb and Persian Gulf states as well. The Arab Spring was a mixed blessing for Obama. He welcomed the advent of democracy, but has no way of setting it on a secular, pro-American course. LARA MARLOW, Washington Correspondent

Divided nation

As well as governing in a partisan capital where Republicans strengthened their majority in the House of Representatives, Obama also faces a divided country.

Polls showed Republicans relied heavily on older, working-class white voters in rural and suburban American. Democrats gathered a majority of votes among minorities, African-Americans, Hispanics and younger Americans.

The growing gulf between rich and poor is also a danger in creating social tensions among a marginalised section of population that feels it has fewer and fewer real avenues of opportunity available to it.

In his victory speech Obama insisted the country was not as divided as its politics suggested, repeating his 2008 exhortation that America was “more than a collection of red states and blue states”. During his second term, without the pressure of re-election, Obama will need to work even harder to fulfil his promise of becoming a bipartisan healer.

Tone will be everything. There will be a temptation to become bolder in both rhetoric and action on issues such as healthcare or tax reform.

But he will need to make the case for his policies in a way that doesn’t alienate further a section of the population that either distrusts him, or feels it has been left behind.

This will mean working with congressional leaders to create the conditions for a sound economy that can create opportunities for all.

All of this will require hands-on campaigning outside Washington's beltway. He will have learned the lessons of the past four years that simply imposing change won't work. He will need to lead a different White House that listens more and works in a meaningful way to reach out to all society, regardless of the colour of the state. CARL O'BRIEN

Supreme court

A long-term impact of the president’s re-election will be his ability to shape the supreme court. His court appointments over the next four years could rewrite the rules for everything from gun control to campaign finance and abortion rights.

While it is possible all five of the conservative-leaning Supreme Court judges will seek to hold on to their seats until the end of the Obama presidency, death or the lure of retirement may draw one or more of them off of the bench.

Over the next four years, he is likely to have the opportunity of naming at least one, and possibly even three or more, judges. But whether he will be able to tip the balance of the court’s ideological make-up is another story.

There is no way of knowing how many vacancies there will be during the next presidential term. Judges are appointed for life, though they can step down for personal reasons, as two older judges have done in recent years.

Of the nine judges in all, four of the court’s judges are in their mid-70s or older. Two of the eldest judges, Ruth Bader Ginsburg (79) and Stephen Breyer (74) are liberals. If he replaced one, or both, with liberals it wouldn’t alter the ideological fault-lines of the court.

But Anthony Kennedy (76), widely seen as a “swing vote” when it comes to key issues, could potentially be replaced by a more liberal judge.The court’s most senior conservative, Antonin Scalia (76), has not shown interest in retiring.

The ideological balance of the court could be crucial for Obama in delivering key policy changes. After all, it was the court’s 5-4 decision that upheld his recent national healthcare law in the teeth of intense opposition from Republicans.

It is also possible that Obama could leave the White House in four years having named more than half of the entire supreme court.

Would he stack the court with liberals? Or seek to heal the divide by appointing more moderates? It is this possibility that may allow the president to leave a long-term stamp on the nation long after he has left office. CARL O'BRIEN

China

In the end, China the bogeyman probably didn’t play as big a role in the US elections as Mitt Romney had hoped for. By telling the voters in the Ohio town of Defiance, incorrectly, that Jeep would be shifting production to China, he merely added a gaffe to the list and frightened people.

Plenty of jobs have gone to China in the past decade with outsourcing. Some think tanks reckon China’s trade surplus with the US cost 2.7 million American jobs between 2001 and 2011. But rising costs in China and a tricky regulatory environment mean a lot of companies are moving back to the US. Chrysler, which makes Jeeps, has added more than 11,000 jobs since the crisis.

That doesn’t mean China isn’t a threat to US hegemony however, and the US-China relationship will remain the defining one of the early 21st century. China’s rising economy is one of the reasons why the US is finding it hard to boost employment at a faster rate.

It’s not so much American firms heading to China but investment from other parts of the world, and China’s growing domestic market, that makes its economy a threat. China is fast overtaking the US’s role as the donor and market of choice among emerging economies.

The forthcoming leadership change in China is a more significant event for emerging economies than Obama's re-election. And while the Chinese yuan currency remains undervalued against the greenback, it has eased in recent months. Obama is unlikely to take trade issues with China too far, because it will soon be a question of how to woo Chinese investment to invest in US companies, to help support job growth in America. CLIFFORD COONAN