For Bush, No Port in this Storm

He needs to put the Dubai Ports controversy behind him to rebuild his reputation as an effective chief executive

As the proposed Dubai Ports World takeover of operations at six U.S. ports wound its way through a federal review this winter, President Bush's economic and political advisers viewed it as little more than a narrow business issue. That was a major miscalculation.

Now, with the White House, congressional Republican leaders, and the government-owned Dubai company trying to quell an unexpected political firestorm, the simple business deal looks more like the thread that could unravel Bush's standing on many fronts. "It's an electoral disaster," says Republican strategist Frank Luntz. "This is potent because it legitimizes all the Democratic attacks of the past three years that the President isn't paying attention."

LITTLE HELP. Bush and the port-management corporation based in the United Arab Emirates are paying attention now. On Mar. 9, the CEO of DP World authorized Senate Armed Services Committee Chairman John Warner (R-Va.) to read lawmakers a press release announcing that the company "will transfer fully the U.S. operations...to a United States entity."

Although the details of the promised transaction were not immediately released, the White House breathed a sigh of relief -- just one day after a key House committee had overwhelmingly voted to nix the deal. Bush press secretary Scott McClellan quickly noted that DP World's concession "does provide a way forward [to] resolve the matter." (See BW, 2/23/06, "Dubai: The Real Shipping News".

That may be wishful thinking. For Bush, the ports backlash has punctured public perceptions of his management skills and has complicated relations with a Middle Eastern ally. It has torpedoed the President's priorities on Capitol Hill and created deep concern among Republicans fearful that the party could lose control of Congress this November. And the collateral damage for the business community is not pretty sight. (See BW, 2/1/06, "A Probusiness State of the Union").

"MINIMALIST" AGENDA. Take taxes. Business representatives in Washington realize that a President with job-approval ratings below 40% will not have the clout to help them win their tax agenda. Bush's predicament makes it more likely that business will have to accept offsetting tax hikes, such as curtailing foreign tax credits for oil companies, if it wants to retain low rates on capital gains and dividends. "Let's be serious about it: The President has diminished political capital," says R. Bruce Josten, senior vice-president of the U.S. Chamber of Commerce. "Last year the business agenda was robust. This year it's minimalist."

Even before the Dubai Ports controversy, companies were scaling back their expectations on Capitol Hill to focus on pension law changes and tax cuts. Now, however, they could be playing defense on a host of new fronts. In particular, Democrats and many Republicans are pushing proposals to give Congress veto power over purchases of American companies by foreign corporations or governments.

Such a proposal would stifle foreign direct investment in the U.S., Josten contends. "While the security of the American people and our critical infrastructure must always be a top priority," he says, "implementing laws that could harm the health of our economy in the name of national security would be a grave mistake."

DETERIORATING IMAGE. Another casualty: Bush's carefully cultivated image as the first MBA President. The botched federal response to Hurricane Katrina, coupled with the ports backlash, have damaged Bush's image as a disciplined, skillful chief executive. (See BW, 9/27/05, "For Bush, an Issue of Competence").

According to a Feb. 28-Mar. 1 Gallup Poll, 40% of Americans believe Bush can manage the government effectively, down from 53% in July, 2005. The biggest skeptics include highly educated professionals. Just 37% of those holding graduate degrees and 39% of those earning between $50,000 and $75,000 give Bush passing marks on management. Among conservatives, 43% told Gallup that Bush is not paying enough attention to what his Administration is doing.

For Bush to turn things around, he'll need to put the ports controversy behind him. "It would behoove Republicans to find a way to avoid a confrontation" between the President and the Congress, says Stuart Rothenberg, editor of the nonpartisan Rothenberg Political Report. That's why so many GOP loyalists are hoping that DP World's Mar. 9 announcement marks the beginning of a reversal of (bad) fortune.

Dunham is BusinessWeek's Washington Outlook editor

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