China can unlock Trump’s trillion-dollar infrastructure plan
S. George Marano says cash- and manufacturing-rich China will inevitably have a major role to play as US President-elect Donald Trump tries to meet campaign promises on reviving the sector
A signature policy of Donald Trump’s campaign for US president was his trillion-dollar plan to fix America’s ailing infrastructure through a public-private partnership model, which resonated well with voters. But the realities of his ambitious plan to “make America great again” in this regard will require much support from China, both financial and material. Policy rhetoric must make way for political reality.
If a person is voted in on a wave of populism, promises must be met quickly or voter resentment will surface. This is the dilemma Trump faces in balancing the need to hit the ground running while saving face and working with China – demonised as a cause of America’s decline. History shows Trump does not object to offshoring work in his own commercial ventures.
The 2013 report card for US infrastructure indicates about US$3.6 trillion will be required by 2020, more than three times the amount Trump plans to spend. Tightening military spending and enticing corporate repatriation might seem harder to execute once in office.
Initiatives such as the Asian Infrastructure Investment Bank (AIIB) could not have come at a better time for the Chinese, given that they are awash with cash. The AIIB’s win-win objective will be very tempting for Trump, who must prove quickly he can reverse the infrastructure issues and create jobs. For the Chinese, a positive sentiment towards such an offering is expected, as they know this brings with it financial as well as political security. With the eagerness of Chinese investors for acquisitions in infrastructure, as seen in Australia, it is inevitable that their presence will increase.
The technical aspects will be more challenging. With much of America’s manufacturing offshored, the world’s factory will be expected to produce the basics while the US retools. An immediate benefit for China will be the manufacture of commodities-type steel products that compete on the basis of production cost. These will be in high demand initially for bridge and road construction. Also, significant machinery orders from China are needed just to begin the task of retooling. In all these areas, China enjoys a cost advantage.
Trump expected to welcome Chinese investment in US, despite threatening tough tariffs on country’s products
Furthermore, while many US firms will be primary benefactors of this plan, most have some aspect of Chinese involvement in their supply chains. These will again, no doubt, increasingly look to China for supply and cost advantages.
Lastly, despite talk about protectionism, again, rhetoric will have to give way to reality. Such chest-beating goes against US free-market principles, and the World Trade Organisation commitments it must uphold. The US cannot afford such posturing.
S. George Marano is a PhD student at RMIT University, Melbourne, Australia, researching international business and strategic management