Trump needs the AIIB to get his American dream on the road
Gu Bin says Donald Trump’s US$1 trillion plan to boost infrastructure would be best served if the US signed up as a member of the Asian bank, and gained access to markets across the Belt and Road region
It was strategically wrong for the US administration under Barack Obama to resist the China-led Asian Infrastructure Investment Bank. It is now time for President Donald Trump to correct the mistake.
Trump has made infrastructure renovation the central theme in his plan to “make America great again”. However, the challenge is funding, with investment of up to US$1 trillion needed over a 10-year period. The government already has US$20 trillion of debt. At 106 per cent of GDP, this far exceeds the 60 per cent recognised limit for debt-to-GDP ratio and breaks the federal debt ceiling as well. Direct federal funding is thus hardly a reliable source. Other funding measures proposed, like tax credits, would be insufficient.
What is worse, in international capital markets, key foreign creditors like China and Japan are continuing to sell their holdings of US government debt, putting upward pressure on US interest rates and making it harder to raise funds in the American market.
Trump needs new channels to fund infrastructure investment. Joining the AIIB would be a good move.
The newly created bank does not suffer from the stereotypes attached to peer institutions like the World Bank, that is, of funding infrastructure in developing countries only. The AIIB charter authorises any non-regional investment conducive to Asia, effectively meaning global investment. This opens up possibilities for the bank to directly fund Trump’s infrastructure plan, renovating ageing US roads, bridges, dams, transport hubs and broadband networks.
Watch: Trump withdraws from the Trans-Pacific Partnership, held up by the Obama team as an alternative to the AIIB
What is more, the AIIB would be a catalyst for private capital flows into US infrastructure renovation, and private sector investment, as designated by the AIIB charter, would not add to the US government’s budget deficit. Since the AIIB will raise funds mainly in global capital markets, it virtually expands the channels for sourcing US infrastructure funding.
Joining the AIIB will also help to revive American manufacturing, another priority for the Trump presidency. Although AIIB-funded infrastructure projects commit to global procurements for the sake of competition and project quality, the bank would tend to favour bids from businesses in member countries. Once America joins the AIIB, American firms would be able to compete on an equal footing for business opportunities – ranging from project design and engineering services, to project construction, machinery and equipment supplies, and so on. This is why the UK, Germany, France, Italy and Canada decided to join, despite obstructions by the US.
The ambitious China-led “One Belt, One Road” international connectivity framework opens up broad infrastructure markets for the AIIB. With membership expected to reach 90 this year, the bank can serve as a unique channel to enhance the competitiveness of US businesses in markets across Asia, Europe and Africa.
Trump has demonstrated a strong ideology of mercantilism: he favours exports and domestic investment. The AIIB would help him to export more and update domestic infrastructure, thus addressing top concerns in his presidential campaign.
The US Congress would have no difficulty ratifying the treaty to join the AIIB, since the Republicans’ scorched-earth opposition to Obama is not expected to be repeated for Trump. The thrust is that the AIIB has proved to be a sincere and trustworthy partner for peer organisations in the first year of its operation.
This may be observed from two perspectives: first, the AIIB’s rules, standards and procedures have been developed to be consistent with international best practice; second, cooperation with the World Bank and other international financial institutions is progressing smoothly, through agreements and co-financing of specific projects. Past concerns over governance and standards have been proven baseless.
The AIIB president has repeatedly reiterated that his bank remains open to the US government. The Obama government misread the AIIB’s aims, thinking it represented China’s endeavour to replace the US in global leadership, and so missed the opportunity to participate in the rule-making process as a privileged founding member of the bank. The new government should apply to join. The sooner, the better.
Gu Bin is an assistant professor of law at Beijing Foreign Studies University. [email protected]