As Trump prepares infrastructure plan, time to mobilize North America’s intellectual resources
The U.S. President-elect plans to invest big-time in infrastructure. This could have a huge impact on the continent, and it’s a bridge Canada should readily support.
Senior fellow, University of Ottawa
Less headline-grabbing than immigration and trade, infrastructure was a continuing theme in this year’s U.S. election campaign. In fact, the one thing that Donald Trump and Hillary Clinton could agree on was “more spending on the highways, rail lines, ports and dams that make up our national infrastructure,” as Nathaniel Popper and Guilbert Gates wrote in The New York Times.
Now, with Trump’s election, concerns about failing infrastructure continue to echo widely across the U.S. – and in Canada as well, where an “infrastructure gap” is much discussed. Will building infrastructure be the basis for deeper cross-border ties in the Trump era?
Presumably – at least from what we have heard – President-elect Trump is committed to a major infrastructure package — huger, he said, than Clinton’s $275 billion proposal. Numbers heard range from $1 trillion to $550 billion. In theory, no one doubts the need to rebuild aging and failing infrastructure (even the Organization for Economic Cooperation and Development said this week that Trump’s promise to spend on infrastructure might increase global growth). But as always, devils lurk in details.
For one, while Trump says that repairing infrastructure is one of his top commitments, he has not told us how he intends to pay for this. One idea bruited about during the campaign focuses on private sector investment. Washington would provide tax credits to investors in infrastructure, recapture lost revenue through taxes on higher wages and contractor profits, and from taxes on profits repatriated by U.S. multinationals. The credits would cover $137 billion, or 82 percent, of the equity investment needed to generate $1 trillion of infrastructure, according to the analysis. Investors would be paid out of revenue streams generated by the infrastructure. The idea is still floating in mid-air. But, critics contend, many much-needed infrastructure projects are unlikely to generate sufficient revenue streams to make this idea work. In any case, Congressional conservatives continue to insist that any spending on infrastructure be balanced by cuts in other areas of government spending.
Another unanswered question: How does the Republican-controlled Congress (Republicans will control both Houses in the new government) feel about Trump’s infrastructure idea? In principle, they support it, but how they will do so is the critical question. An infrastructure bank? Use funds gained from taxes on U.S. corporations’ “repatriated” profits? But likely not with an increase in the gas tax. And, for many conservative stalwarts, any new spending must be “revenue neutral” – that is, matched by cutting spending somewhere else. Moreover, differences between the House and Senate seem to be emerging. Senate Majority Leader Mitch McConnell has stated that infrastructure will not be on the top of the Senate’s agenda.
And, to further cloud the issue, Trump himself said in his recent interview with The New York Times, infrastructure will not be a “core” part of his agenda in the first few years of his administration. In other words, stay tuned.
What the fix involves
So far, the new U.S. government’s infrastructure plans are pretty foggy. Most discussions have focused on how to finance infrastructure. But what to do is the central question, and it is clear that “fixing” infrastructure involves quite different – and perhaps competitive – needs in both the U.S. and Canada.
One is the obvious need to fill potholes and repair damaged bridges, wires and pipelines. The now-celebrated report card on American infrastructure, released earlier this year by the American Society of Civil Engineers, gives U.S. infrastructure an overall grade of D+, and a slew of reports have repeated the same message over the past decade.
This is hardly surprising. Much of the country’s basic infrastructure is old. The U.S. Interstate highways date to the mid-century, while its national railroad system tracks an economic geography of the late 19th century. Its electricity grid is largely a post-war achievement. The bridges and tunnels of the Northeast Corridor are ancient. And maintenance and new investment have both lagged badly in the past decades.
Filling potholes and repairing bridges are political as well economic requirements. Failing to keep basic infrastructure functioning well not only runs up huge economic costs, but undermines the legitimacy of governments. I believe it was the famed Pittsburgh mayor David Lawrence who many years ago said that the key to being a successful mayor was picking up garbage and fixing potholes.
But we must also recognize that infrastructure needs are being transformed by technology and climate change, and by changing patterns of production and trade. This demands different responses. The key here is not job-rich, “shovel-ready” projects, but rather developing a vision of emerging infrastructure needs and how different pieces fit together – and then creating a strategy for meeting these needs.
For example, how much sense does it make to spend billions of dollars dredging and deepening ports all along the U.S. East Coast when a number of factors could cut the value of these investments: there’s a good chance that trans-Pacific trade will diminish (as China devotes more resources to production for domestic demand and as its labour cost advantage erodes); fewer, larger vessels are likely to dominate container trade; many of the largest of these ships will not be able to pass through the expanded Panama Canal; the likelihood that these large container ships will transit up and down to East Coast ports is low; and finally, most of these ports will face increasingly severe and likely disruptive weather conditions over the next years.
Another example lies with planning for highway construction. Must we assume that trucks will continue to haul the largest share of North American freight? Even cleaner trucks are still dirty and building roads is carbon intensive. Can we think about a freight rail system that will work for the 21st century? (And does not continue to hinge on Chicago?) We need to think about how to balance the need to repair the desperately worn Northeast Corridor bridges and tunnels and the strong possibility that major weather events will more frequently overwhelm segments of the Corridor.
The point is: We must now think about infrastructure in different ways. With limited resources and facing profound change in technology, patterns of agriculture and manufacturing production, weather events and demographics, we need to think strategically about infrastructure.
Repairing existing infrastructure and thinking linearly – that today’s conditions will continue into the future – is not going to meet rapidly changing conditions. Given aging infrastructure on one hand and the enormous cost of replacement on the other, the decisions made in the next few years will create the basic platforms for how our economies and societies function over the next decades, even a century. The rush to fill potholes is important, to be sure. But we must also think through the implications of our current decisions.
A new form of collaboration?
Canada and the U.S. share infrastructure interests well beyond border crossings. We possess shared interests in constructing a sustainable, affordable and efficient energy infrastructure for the 21st century, in building transportation infrastructure that will support intense collaboration along the supply chains which support much of our manufacturing. We share interests in developing transportation and communication infrastructure that will make our northern shores productive, accessible and safe.
Trump says NAFTA was a disaster, but he also says he is determined to rebuild the U.S. economy. Great chunks of our economies are deeply interdependent, tied together by networks of roads, rails, wires and pipelines. Our future competitiveness depends on the decisions we make now about how we will meet changing infrastructure requirements for the 21st century.
Perhaps Prime Minister Justin Trudeau’s task is to convince Trump that we don’t just sell stuff to each other, we make it together; that we are two sovereign nations whose collaboration generates great benefits for both of us.
Two cautions: One, this is not a call for another report. It is a call to initiate a conversation among a range of transportation, infrastructure, business and government leaders on building infrastructure for the 21st century. It is a call to mobilize intellectual resources – universities, transportation research centres, think tanks – that can be involved in this conversation. It is a call to escape from the incrementalist thinking that has dominated infrastructure planning.
Second, this should be the first step to thinking about continental infrastructure. Bringing Mexico into the Canada-U.S. free trade framework was an enormously brave endeavour by all three governments. The costs of lost jobs – within Mexico and in the U.S. and Canada as well – have at times been severe. But the benefits have been profound, particularly for North American industries in terms of competition with China. Canada-U.S. collaboration on infrastructure should be seen as the beginning of a continental strategy, not as an effort to wall off Mexico.
Rebuilding critical infrastructure – and even more, building new infrastructure focused on 21st century needs and technologies – is a critical step toward maintaining and extending our competitiveness in an increasingly tough global environment. It is a step that we can and must take together.