On April 30th, the U.S. President Donald Trump met with House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer at the White House. As a result of those talks, the outcome was that they agreed to a US$2 trillion infrastructure plan to upgrade America's highways, railroads, bridges and broadband infrastructure.
In a rare occasion, both parties described the meeting’s result in positive terms. “We did come to one agreement, that the agreement would be big and bold,” said Pelosi. Meanwhile Schumer stated that, “We agreed on a number, which was very, very good — $2 trillion for infrastructure. Originally, we had started a little lower, and even the president was eager to push it up to $2 trillion. That is a very good thing”. White House press secretary Sarah Sanders said it was an “excellent and productive” meeting, and there will be “another meeting in three weeks to discuss specific proposals and financing methods”. “The United States has not come even close to properly investing in infrastructure for many years, foolishly prioritizing the interests of other countries over our own,” Sanders added.
The two parties agreeing to put in US$2 trillion to upgrade U.S. infrastructure appears to be a rare occurrence, and indeed is one of the first examples of the two parties reaching a consensus on major issues since Trump took office. Such a large-scale plan to revive the U.S. infrastructure will, once put into action, have an important impact on the U.S. economy, politics, and possibly even the global economy.
First, the US$2 trillion infrastructure plan might very well be just the beginning. Once an infrastructure construction of this scale is implemented, it will provide new support for the stable growth of the U.S. economy and help raise the income level of the American middle class. Since 2016, the Economic Report of the President has been mentioning how the serious aging of U.S. infrastructure has restrained economic efficiency. Improving infrastructure can increase the efficient flow of labor, ease structural unemployment and increase geographical mobility, thereby promoting the job market, reducing logistics costs, and creating a better business environment. Since Trump assumed the presidency, he has been hoping to stimulate U.S. economic growth, as well as improving and upgrading of major infrastructure such as highways, airports, and water conservation systems. It appears that the US$2 trillion infrastructure plan would be a long-term plan. While it is targeted to improve investment and employment in the short term, its main role is to boost the confidence of investors and companies in the U.S. economy for the long term.
In political terms, this US$2 trillion infrastructure plan will be advantageous for Trump, pushing him closer towards a win in the next presidential election. Trump has repeatedly claimed that he would completely change the existing infrastructure in his campaign. In February 2018，Trump proposed a US$ 200 billion federal fund to underpin a grand infrastructure scheme worth US$ 1.5 trillion in total to transform the old infrastructure in the next decade. Out of this, US$ 100 billion would be used to build incentive programs in order to motivate local governments and private investment. US$ 50 billion will be used to support rural areas to rebuild and transform infrastructure projects such as transportation, hydropower and broadband. Another US$ 50 billion will be directed towards transformative infrastructure projects, expanding existing infrastructure financing projects and working capital. However, this has not been implemented in the past year. The US$ 2 trillion in infrastructure investment agreed by the two parties, surpassing Trump’s previous US$ 1.5 trillion plan, is undoubtedly a political gift to Trump. If the U.S. government is benefited from upgrading the infrastructure, it may continue expanding its infrastructure. This would be advantageous for Trump's campaign and increases the likelihood and success of his re-election.
This infrastructure plan could affect the U.S. dollar’s exchange rate as well. The scale of US$ 2 trillion worth of infrastructure investment far exceeds the size of the US military expenditure for one year, which is a test for US finances. At present, there is no definite conclusions about where the US$ 2 trillion funds would come from, but it is very likely that the U.S. has to increase its deficit and finance the infrastructure plan by expanding its debt. If the debt is significantly expanded within the short term, it will likely lead to a weaker dollar. From Trump's previous disclosure, he tends to think that working with the private sector to increase infrastructure spending is an option worth exploring. Infrastructure can create a lot of jobs, but the federal government would not be able to afford all the expenses, so the federal government would need to utilize tolled roads and tax credits to stimulate private investment.
The huge scale of infrastructure may take away some of the U.S. military spending. The huge military expenditure has always been a major expense in the U.S. budget. Since 2008, the U.S. military budget has been more than US$ 600 billion. In the National Defense Authorization Act for Fiscal Year 201 (NDAA 2019) signed by Trump last year, the U.S. defense budget for 2019 is US$ 716 billion. This means that the size of the U.S. infrastructure investment is equivalent to about 280% of the 2019 military expenditure. Even if capital investment is to be carried out in the course of several years, its scale cannot be ignored, and it may very well affect the military expenditure.
Finally, this huge infrastructure investment plan may put the Democratic Party in a less advantageous position. The agreement on infrastructure reached by the Democratic Party and the Republican Party reflects the problems faced by the Democrats. Pelosi, the current Speaker of the House of Representatives, does not seem to be as powerful as she once was imagined to be. Her influence on the unity of the Democratic Party and on economic policy seems to be weak. In fact, the Democrats had been proposing such infrastructure plans in the past. In February 2014, the then U.S. President Barack Obama announced a four-year, US$ 300 billion infrastructure construction plan to rebuild the U.S. highways, bridges, and railways, thereby generating hundreds of thousands of new jobs. However, because of the bipartisan dispute, a number of proposals related to increased infrastructure investment during the Obama era failed to get through. Now with the Republican Party in power, the Democrat leaders have unanimously agreed to Trump’s super-infrastructure plan. From the perspective of domestic politics, it shows that Pelosi failed to effectively compensate for the Democratic Party’s administrative defects.
Final analysis conclusion:
The agreement of the infrastructural plan reached by the two parties in the United States could affect the future of the U.S. economy and the U.S. dollar. It will also help boost Trump's re-election campaign, and influence global politics and economy through the U.S. economic and political landscape.
