US lawmakers fail to reach deal

"Instead of closing a single tax loophole that benefits the well-off and well-connected, they chose to cut vital services for children, seniors, our men and women in uniform and their families," he said in a prepared statement. "They voted to let the entire burden of deficit reduction fall squarely on the middle class."

On Jan 2, Congress enacted an agreement with Obama to avoid most of the anticipated tax increases that would have come from another crisis, the so-called fiscal cliff. On top of sequestration, Washington faces a potential crisis from the expiration on March 27 of stopgap funding for government spending known as the "continuing resolution." To avoid a shutdown of many nonessential government functions, lawmakers will have to approve a new continuing resolution.

House Speaker John Boehner, an Ohio Republican, said on Thursday in a statement: "It's embarrassing that after 15 months, Senate Democrats still haven't passed a single sequester-replacement bill. Now that today's political stunt to raise taxes has failed, it's time for the president and Senate Democrats to do the hard work that is necessary to pass a bill in the Senate so we can begin to resolve this issue."

Eswar Prasad, a professor of international trade and economics at Cornell University, expressed concern about the potential effect of sequestration on the global economy. Both the worldwide and US economies are fragile, with uncertain growth prospects, he said.

"The fiscal drag and economic uncertainty spawned by this sign of policy gridlock in Washington is going to hold back the US economic recovery both directly and through its negative effects on business and consumer confidence," said Prasad, a former China division chief for the International Monetary Fund.

"If the sequester does damage the US economic recovery, the world will once again have to turn to China as the main contributor to world growth in 2013," he said. "China's export growth will take another hit if the US and Europeans economies continue to perform poorly this year."

Prasad said a return of the US economy to recession, particularly if accompanied by a significant increase in unemployment, could heighten US-China economic tensions.

"At the moment, the attention of US policymakers is entirely focused on domestic issues, so this may not be a pressing concern. But there is a risk that a weak labor market and a rising bilateral trade deficit with China could lead to rising trade tensions later this year," he said.

Contact the writers at josephboris@chinadaiyusa.com and chenweihua@chinadailyusa.com