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

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President Xi Jinping and Foreign Minister Wang Yi (far left) with delegates from member states at the launch of the Asian Infrastructure Investment Bank, in the Great Hall of the People on October 24, 2014. Photo: Reuters

Published: 11:33am, 29 Mar 2017Updated: 7:16pm, 29 Mar 2017

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.

China can unlock Trump’s trillion-dollar infrastructure plan

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.

The AIIB charter ... opens up possibilities for the bank to directly fund Trump’s infrastructure plan

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.