Will non-U.S. firms have a role in Donald Trump’s infrastructure strategy?
Of all the high-profile campaign goals voiced by U.S. President Donald Trump, it was the promise to invest heavily in the country’s infrastructure that has proved to have the broadest appeal.
As usual, though, the devil is in the details. And so far, many of the details remain unclear. What we do know is that the Trump White House has vowed to spend, directly and indirectly, some $1.5 trillion (1.2 trillion euro) over ten years in order to prop up the country’s infrastructure, whether roads, bridges, and tunnels, or for energy, telecommunications, waste water systems, hospitals, or border security.
Of that total amount, around $200 billion (160 billion euro) is expected to come directly from the federal government’s coffers. The rest will come from private sources or from state and local governments, which will make most of the specific decisions on bidding processes and conditions.
All told, the federal government could use half its total contribution to underwrite as much as 20 percent of a project’s costs if state and local governments raise the remainder. Government documents reveal that $20 billion (16 billion euro) would be earmarked for “bold and innovative projects that have the potential to dramatically improve [the country’s] infrastructure,” and the same amount will be used for financing projects. A total of $50 billion (40 billion euro) will be set aside specifically for rural projects.
“I see this as taking a play from Donald Trump’s real-estate developer play book,” Aaron M. Renn, a senior fellow with The Manhattan Institute, a policy research entity, specializing in urban development, told Infrastructure Channel. “The government is planning to heavily leverage their investments to get the widest possible impact.”
According to analysts, the plan essentially privatizes the infrastructure, allowing companies to operate them either on a system that generates revenue in return for those companies footing most of the bill. The government would also provide support in the form of tax incentives and by accelerating the process of getting permits.
“Coming from a construction background, Trump knows that waiting around for the permits can kill a project,” Peter Ferrara, a senior fellow for economics and legal affairs with The Heartland Institute, a public policy think tank, said in an interview.
A White House spokesperson told Infrastructure Channel the plan would represent an “enormous” opportunity for the sector, and Trump himself, calling the plan “the most comprehensive infrastructure bill” in U.S. history, said the initiative could create as many as 11 million new jobs.
What does that mean for private builders, contractors, architects, and planners headquartered outside the U.S.? There’s no real consensus on that topic.
“It really shouldn’t matter whether the company building or operating, say, a highway is American or not because they can’t really roll up the highway and take it back to their country,” Ferrara said.
Ferrara allowed that infrastructure related to national security -- airports or seaports, for example, or telecommunications -- might be subject to a different set of rules. But in most cases, he said, he doubted it would be a factor.
“If the most attractive bid comes from a foreign company and they have the cash to make it work, then issuing restrictions based on where a company is based wouldn’t make much sense,” Ferrara said.
The Manhattan Institute’s Renn said he was not convinced on that point, however.
“There’s a ‘Buy America’ policy for federal contracts and I assume that would be the case with many of these projects,” Renn said. “I’d also be surprised if a foreign company could build a subway line, for example, and ship in the materials and commuter cars into the U.S. and still be economically competitive. But there could be some specific circumstances where foreign partnerships could work.”
The White House’s plan to raise import tariffs on steel and aluminium are expected to have “a modest effect at most” on the infrastructure investment strategy, Renn said.
One area that is not clear is how many of the infrastructure projects could generate a profit for a companies involved. The White House spokesperson said that aspect would become clearer “over the coming months.” Meanwhile, analysts said the most common revenue system would be based on tolls, charging those who use the road or bridge for that use. Renn also discussed the possibility of using an “availability payout model,” which would see government entities pay a kind of subscription for updating and operating key infrastructure.
Paul Krugman, a Nobel Prize-winning economist with the Graduate Center of the City University of New York, told Infrastructure Channel that the profit angle is one of the weak points of Trump’s plan.
“Many kinds of infrastructure, like sewers or water sanitation systems, can’t really be run on a for-profit basis,” said Krugman. “They should be run as part of the public good.”
Krugman called for the government to invest directly in modernizing infrastructure rather than trying to leverage limited cash as an incentive for private companies.
However it works out, commentators agreed that it was better to move sooner than later. Roy Cohn, director of the National Economic Council and Trump advisor, estimated in February that unnecessarily delaying improvements to the country’s infrastructure could ultimately cost the country as much as $3.7 trillion (3.0 trillion euro), nearly 250 percent the amount the White House has said it hopes to spend on the sector.