President Joe Biden hosts debt limit talks with House Speaker Kevin McCarthy (R-CA), Vice President Kamala Harris and other congressional leaders in the Oval Office at the White House on May 16, 2023.
CNN  — 

President Joe Biden’s pledge to the world that “America is back” after a period of political turbulence is looking a little shaky after a debt showdown with Republicans forced him to shorten an Asia-Pacific trip designed to showcase US power amid a challenge from China.

A trickle of progress in Biden’s White House talks with Republican House Speaker Kevin McCarthy came too late to save his swing through Papua New Guinea and Australia next week – an international embarrassment that will not go unnoticed by Chinese President Xi Jinping who promotes his nationalistic authoritarian capitalism as an alternative to the West’s creaking democracies.

Biden will still leave for the G7 summit in Japan Wednesday but clearly reasoned that he needs to be back in Washington earlier than scheduled next week as a crisis inexorably builds as Republicans seek to extract huge spending cuts in exchange to lifting the government’s borrowing authority.

His decision reflects the reality that his presence will be critical to solving the most perilous Washington political dispute of his presidency that threatens to result in the United States – a supposed haven of global financial stability – defaulting on its debt obligations by June 1.

And it shows that a hint of progress in Biden’s Oval Office talks with McCarthy on Tuesday did little to slow the racing countdown to a potential catastrophe that could shatter the economy, and threatens market-linked pensions, benefits and the financial security of millions of Americans.

While such an outcome would rock the global economy – in which US and Chinese interests are entwined – it would represent a huge propaganda win for America’s foes and would severely dent Washington’s claims to reliable global leadership in the long-term.

It’s an extraordinary scenario that the rest of the world is wondering whether the US will pay its debts. And that will be a huge distraction when Biden shows up in Japan.

In other new developments on Tuesday:

  • Biden and McCarthy agreed to appoint representatives for direct negotiations between them in a minor sign of progress.
  • First signs emerged, however, of Democratic anxiety about potential concessions that Biden could offer, with Pennsylvania Sen. John Fetterman lashing out at McCarthy’s “red line” of more stringent work requirements for Medicaid recipients as a condition of the deal.
  • Concern is also growing on Wall Street that an unprecedented debt crash could cause a recession. The Dow Jones Industrial Average was off about 1%. A coalition of CEOs meanwhile wrote in a letter to Biden and Congressional leaders that a default would cause “a devastating scenario … and potentially disastrous consequences.”

Tiny progress but no breakthrough

Biden insisted Tuesday that his meeting with McCarthy and other congressional leaders was productive and the speaker said he was encouraged that the talks were “a little more” useful than a previous round. White House and Hill negotiators held an initial meeting on the debt ceiling Tuesday evening, a source familiar with the talks said, with talks expected to continue daily.

But the reality is this: the gaps between the two sides on policy and the political dynamics – namely a radical Republican House and tiny majority that makes McCarthy a pliable speaker vulnerable to extremists – have not changed at all.

So the crisis is effectively getting worse – a factor in the naming of Republican Rep. Garret Graves to negotiate with Office of Management and Budget Director Shalanda Young and White House aide Steve Ricchetti on the debt limit.

“Nothing has been resolved in this negotiation. The only thing that has changed is we finally have a format that has proven to work in all the years in the past,” McCarthy said.

Thomas Kahn, a professor at American University’s School of Public Affairs – who was the longest serving House Budget Committee staff director in history – said that while it was positive that the two sides were talking, the incremental nature of the staffing announcement reflected the massive gaps that remain.

“The parties could not agree on substance, so they agreed on process,” he said.

The maneuvering at the White House and on Capitol Hill on Tuesday also hinted at a shift in the politics of that process. After months insisting that Biden would not negotiate spending cuts to secure a raising of the debt ceiling in a reward for Republican “hostage taking,” the White House now appears to be doing exactly that.

That doesn’t mean that Democrats will accept a Republican bill raising the debt ceiling that includes big spending cuts already passed through the House. And any compromise could still come in the form of budget agreements that allow the president to insist he didn’t waver on his vow never to cede to GOP brinkmanship on the debt ceiling. But it does appear to show that the Democrats have given up their hope of securing a “clean bill” lifting the borrowing limit with no concessions.

“We have to come to common ground,” Senate Democratic Majority Leader Chuck Schumer said. “That is the only way this has ever gotten done. It has never gotten done with one party saying, ‘You have to do it my way.’ You have to get both parties in both houses together.”

But averting catastrophe will not be as simple of clinching a classic Washington deal between Biden and McCarthy.

There are questions over McCarthy’s own political capacity and dexterity. He was for instance only able to pass what was effectively a symbolic debt ceiling bill and a Republican wishlist through the House last month by a single vote because of his tiny majority, despite making multiple concessions to far-right Freedom Caucus members.

So even though he appears to have claimed a concession by getting Biden to negotiate, it’s possible that his own conference in the House wouldn’t accept its win.

And it’s also doubtful that the speaker could pass any deal that was satisfactory to Biden and Senate Democrats through his radical House conference. While Republicans have every right to seek spending cuts after running on such a platform in the midterm elections, their choice of the debt ceiling showdown as a moment of leverage does risk disastrous consequences. And there’s a strain of absolutism in the House GOP that views compromise as a defeat – a sense that may have been exacerbated by ex-President Donald Trump downplaying the impact of a default in a CNN townhall last week. (Treasury Secretary Janet Yellen has warned that if the government ran out of cash, she’d have to choose which bills to pay, meaning for instance that some citizens might not get their benefits or active service personnel might not get their wages.)

McCarthy doesn’t have much of a political safety net. One way to raise the debt ceiling might be to build a coalition of Republicans and moderate Democrats to isolate the extremists in his own party. But if he tried, he’d probably pay with the loss of a job he’s pursued for years after agreeing to a rule that means a single member can call a vote on toppling the speaker to win the votes of radicals in his bid for the top job.

The substance of any deal also looks deeply problematic.

McCarthy says that any agreement must contain new work requirements for some recipients of some federal benefits. But Fetterman, the Democratic senator from Pennsylvania, warned Tuesday that the plan would cut food assistance for nearly 40,000 people in the commonwealth.

“I cannot in good conscience support a debt ceiling proposal that pushes people into poverty,” Fetterman said.

The length of a debt ceiling raise could also be an issue.

Having gotten Biden to the table, McCarthy would clearly like to jam him again on spending in a year or so in a bid to weaken him at a critical moment of his reelection bid. Many Democrats want a deal that pushes the politically perilous need to raise the debt ceiling past the next election.

There’s also a logistical issue. It takes time to get a bill through the Senate, and through the House and to Biden’s desk. Potentially, both chambers could vote on a short-term extension to raise the debt ceiling to allow time for more negotiations. But McCarthy’s capacity to win one vote is in question, let alone two.

“The clock is absolutely ticking, and I think the hurdles are huge,” said Kahn.

The world is watching

The political risks of Biden leaving the country two weeks before a potentially damaging financial crisis are high. If talks founder over the next few days, Republicans will likely accuse him of caring more about hanging out with foreigners than Americans. But a failure to travel at all would have been a disaster for his foreign policy, especially at a time when he wants to use the G7 summit of industrialized democracies to reinforce global support for Ukraine ahead of its expected spring offensive against Russian invasion forces.

Biden told reporters Tuesday evening that the “nature of the presidency is addressing many of the critical matters all at once.”

While his trip will be curtailed, a friend as loyal as Australia is unlikely to take offense at a time when it is becoming even more of a fulcrum of US military policy. But the postponement meant that a Quad summit in Sydney between the leaders of Japan, the US, Australia and India had been canceled.

The talks, Australian Prime Minister Anthony Albanese said, could still proceed in Japan where the leaders of all four nations will be at the weekend.

Diplomats in Asia, where every geopolitical reverberation is examined for its impact on a wider strategic canvas, put a great premium on American presidents showing up in person to bolster Washington’s claims to be a key regional power. So Biden’s quick trip to Japan will be appreciated – but the shortened itinerary will still be a blow to US prestige and will deepen concerns that US domestic political instability will threaten US global staying power.