WASHINGTON – The effects of the $85 billion in U.S. government spending cuts that were to kick in Friday will be felt across oceans and could further hurt recession-hit Europe and burden an economically slowing China, shrinking the market for countries that depend on selling things to the United States.
The cuts could also mean longer waits for visas for tourists and businesspeople if the State Department is forced to cut back its programs, including consular services.
Politicians and economists in Washington argue over just how badly the cuts will harm the still-weak American economic recovery, but conservative estimates forecast a 0.5 percent dip in gross domestic product this year.
That is a sizable slippage in an economy that was expected to grow by less than 2 percent.
The U.S. economy grew at a 0.1 percent annual rate from October through December, the weakest performance in nearly two years.
But most economists believe that a steady housing rebound, stronger hiring and solid spending by consumers and businesses are pushing economic growth higher in the current quarter.
The U.S. Commerce Department’s second estimate of fourth-quarter growth, which was released Thursday, was only slightly better than its initial forecast that the economy shrank at a rate of 0.1 percent. And it was well below the 3.1 percent growth rate reported for the third quarter.
The cuts will not strike all at once, and the whole issue could be resolved by late March, when the country faces another budget deadline, this time over funding for the federal government.
Democrats and Republicans could reach a big-picture deal that would not only avert a possible government shutdown, but also set aside the Draconian cuts.
President Barack Obama was scheduled to discuss these budget issues in a meeting later Friday with Republican and Democratic congressional leaders.
But if Obama and the lawmakers don’t find a way to stop the cuts soon, the consequences could be felt worldwide. Many Americans would have less money in their pockets and would spend less.
For big exporters to the United States, such as European nations and China, that would mean fewer sales to the people who live in the world’s largest economy.
Beyond the dollars and cents, however, is the important issue of confidence. How, other nations ask, were U.S. politicians unable to avoid the coming cuts?
Politicians have had since 2011 to sidestep the cuts if Democrats and Republicans managed to reach a compromise on the budget.
“The mechanical impact of cutting spending in a slowly recovering economy won’t be positive,” said Kent Hughes, director of the global economy program at the Woodrow Wilson Center. “All the more so will be the question of why we could not reach an agreement. That adds to international uncertainty. Europe and China are sure to feel that.”
Randall Stone, a University of Rochester professor who studies the global economy, said he is concerned not only about the blow to global exports to the United States but also about the effect on world markets.
“Every financial market in the world is vulnerable, Europe in particular. It’s hard to disentangle the web and figure out the effects, but we know how deeply vulnerable the European markets are right now,” Stone said.
“This could further delay the European recovery just long enough for something to go wrong in one country and send Europe into a severe contraction and that would have a backlash in the U.S.”
As the deep cuts take effect, the United States is joining the countries of Europe where governments, by and large, have imposed painful austerity programs aimed at slashing crippling debt burdens.
Those cuts, including in pension and social welfare programs, have sent poverty and unemployment soaring in the hardest-hit nations such as Greece and Spain.
The U.S. cuts will only compound those problems, most dramatically in European nations that depend on exports to the United States.
Washington has paid little attention to the global implications.
“We are the indispensable economic partner for stabilizing international cooperation, and it’s scary when the U.S. makes decisions that affect the rest of the world economy without thinking things through,” said Stone.
The Wilson institute’s Hughes agreed, saying: “As a country, we are still not aware of how much we’re tied to the global economy. This is now so tied to a bitter disagreement over domestic growth that it’s pushed all those other considerations aside.”