Taking stock of the shock after Trump wins US presidency

America has voted for change and Donald Trump is on his way to the White House after a shock election victory over Hillary Clinton. Andy Walker reports on a political earthquake in the US and offers some initial thoughts on what it might mean for infrastructure and the economy.

Donald Trump speaking shortly after his presidential victory was confirmed.

The UK and the world has woken up to the reality of a Donald Trump presidency in the United States. The political outsider’s shock victory over Hillary Clinton clearly indicates that a significant proportion - though not a numerical majority - of the American people want to see change in the way their country is run. We are certainly living in interesting times.

What that change that the American electorate have voted for will actually mean in practice is still far from certain, but change is definitely coming and there will be some significant implications for the infrastructure sector and also the world economy.

During the presidential election campaign, Donald Trump, in common with his opponent Hilary Clinton, promised to spend billions of dollars on infrastructure if he won the keys to the White House. That the US needs to invest in its crumbling bridges and highways is not in doubt. According to the American Society of Civil Engineers, the backlog of infrastructure projects is expected to cost $3.6 trillion by 2020. With the need for investment so great, it’s little wonder that infrastructure was one of the few areas where Trump and Clinton agreed during the campaign. 

Trump didn’t give a precise figure for how much he wants to spend on infrastructure, other than to pledge that he would at least double the $275bn that Hillary Clinton proposed. A key challenge going forward may well be whether the newly elected Republican Congress will have the appetite for what looks like another economic stimulus program. However, Trump will find it difficult to back down on his infrastructure pledges which were well supported by voters, which is good news for construction businesses in the US and internationally.

"Trump will find it difficult to back down on his infrastructure pledges which were well supported by voters, which is good news for construction businesses in the US and internationally."

In terms of detail, Trump has pledged to develop US transportation, water, telecommunications, and electricity systems, using “American steel made by American workers.” He wants to use tax credits to attract private investment and streamline the permitting process for pipelines and other energy projects.

His pledges were short on the details of how he will pay for his plans, but he has suggested that he would issue bonds and also support an infrastructure bank. “We’ll get a fund, make a phenomenal deal with low interest rates, and rebuild our infrastructure,” Trump said during the campaign. He has also threatened to “cancel billions and billions of dollars in payment to the UN...and use it to rebuild our infrastructure”. 

During the campaign, Trump’s headline pledges on infrastructure were to: -

  • Transform America’s crumbling infrastructure into a golden opportunity for accelerated economic growth and more rapid productivity gains with a deficit-neutral plan targeting substantial new infrastructure investments.
  • Pursue an “America’s Infrastructure First” policy that supports investments in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs.
  • Refocus government spending on American infrastructure and away from the Obama-Clinton globalisation agenda.
  • Create thousands of new jobs in construction, steel manufacturing, and other sectors to build the transportation, water, telecommunications and energy infrastructure needed to enable new economic development in the US, all of which will generate new tax revenues.
  • Put American steel made by American workers into the backbone of America’s infrastructure.
  • Leverage new revenues and work with financing authorities, public-private partnerships, and other prudent funding opportunities.
  • Harness market forces to help attract new private infrastructure investments through a deficit-neutral system of infrastructure tax credits.
  • Implement a bold, visionary plan for a cost-effective system of roads, bridges, tunnels, airports, railroads, ports, waterways, and pipelines.
  • Link increases in spending to reforms that streamline permitting and approvals, improve the project delivery system.
  • Employ incentive-based contracting to ensure projects are on time and on budget.
  • Approve private sector energy infrastructure projects—including pipelines and coal export facilities—to better connect American coal and shale energy production with markets and consumers.
  • Work with Congress to modernise airports and air traffic control systems, end long wait times, and reform the FAA and TSA, while also ensuring that American travellers are safe from terrorism and other threats.
  • Make clean water a high priority. Develop a long-term water infrastructure plan with city, state and federal leaders to upgrade aging water systems. Triple funding for state revolving loan fund programs to help states and local governments upgrade critical drinking water and wastewater infrastructure.
  • Link increased investments with positive reforms to infrastructure programs that reduce waste and cut costs. Complete projects faster and at lower cost through significant regulatory reform and ending needless red-tape.  

This is all very encouraging for the infrastructure sector - if Trump is able to deliver on these pledges. His focus on an ‘America First’ approach to infrastructure development may however mean fewer opportunities for international firms in the US market and his oft-stated opposition to free trade could also mean penalties and tariffs on firms from overseas.

Of course, Trump’s threats to hike tariffs on Mexico and China by 35% or 45% will be difficult without collaboration from lawmakers in the US Congress and major US corporations will undoubtedly fight Trump’s threatened trade threats because any complications in the global supply chain means losses to their bottom line. However, given Trump’s proposals on tariffs, the threat of a escalating trade war is real.

Such a situation could lead to retaliatory tariffs and other penalties on big US companies doing business abroad, which would ultimately hit the pockets of the American people whether they are buying cheap goods in the local Wal-Mart or expensive goods at the Apple store. Any Trump-led assault on the foundations of global commerce will cause no end of problems with the US’s major allies, especially when it comes time to dealing with some of the key non-economic challenges facing the globe.

Little wonder then than the financial markets, especially in Asia, dropped markedly as the news of Trump’s victory started to emerge. A period of market instability and uncertainty may seem inevitable, but it might not last for very long. 

Traditionally, increased levels of uncertainty mean greater hesitation in making important decisions in the short term, both by individuals and by governments, but this uncertainty may also actually accelerate implementation of beneficial reforms in the medium term to reduce that uncertainty and stimulate investment as a result.

One thing that this result most definitely shows is that policymakers need to listen much more closely to voters’ concerns and to ultimately act on them. The success of Trump’s pledge to “Make America great again” will depend to a large extent on whether his infrastructure programme can be delivered in a way that develops the economy and the prospects of the people who voted to put him in the White House.

The political parallels with the UK in the wake of Brexit and given the need to develop our ailing infrastructure are clear. On both sides of the Atlantic we are indeed living in interesting times.

Andy Walker is the editor of Infrastructure Intelligence.

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