The geopolitics of infrastructure: the US passes the Infrastructure Investment and Jobs Act
Infrastructure as a key element in foreign policy and geopolitics
The geopolitics of infrastructure has become increasingly important as countries continue to invest in their economic recovery from the COVID-19 pandemic. This is also being driven by shifting power dynamics and competing visions of the future of the international order. Infrastructure has long been regarded as an important aspect of domestic policy and national power — it is also a critical element in foreign policy. Geopolitics shapes infrastructure policies and in turn infrastructure policies shape geopolitics.
The United States (US) foreign policy post-WWII included The European Recovery Program — more commonly known as the Marshall Plan — which involved providing U.S. assistance to rebuild the infrastructure and industries of war-torn Europe and to rebuild West Germany as an ally and peaceful democracy. Under the Biden administration, the geopolitics of infrastructure is back, and the US is investing heavily in infrastructure with clear foreign policy objectives — in particular, gaining advantage in its strategic competition with China.
This commitment is evident in recent legislation passed by the US Congress. The $US1.2 trillion ($AUD1.6 trillion) Infrastructure Investment and Jobs Act (IIJA) was passed by the US Congress and signed into law by President Joe Biden. It represents the largest federal investment in the country’s infrastructure for decades. It provides investment in maintaining and modernising roads and bridges, rail, transit, ports, airports, broadband, the electric grid, electric vehicles and water systems. IIJA demonstrates infrastructure is an important aspect of US domestic policy and politics — it is also a critical element in US foreign policy in its strategic competition with China.
China’s BRI and the G7’s Build Back Better World
After its opening up in the 1980s, China’s infrastructure policies have long played a significant role in its foreign policy and global influence – this is evident in China’s Belt and Road Initiative (BRI). China’s BRI initiative has attracted interest from over 150 countries and international organisations in Asia, Europe, the Middle East, and Africa. Over the past eight years China’s BRI has financed projects globally, including roads, railways, power plants and telecommunications infrastructure.
As a counter to China’s growing influence through the BRI, the US and other G7 countries launched a worldwide infrastructure plan, Build Back Better World (B3W), in Cornwall in June 2021. The plan aims to invest in infrastructure in low and middle-income countries around the world through investment by the private sector, the G7 and its financial partners. The Biden administration also aims to use the plan to complement its domestic infrastructure investment and create more jobs at home to demonstrate US competitiveness abroad.
‘Made in China’ and ‘Make it in America’: the geopolitics of infrastructure and clean energy technologies
A clear case of the US-China strategic competition in infrastructure is the establishment in 2021 of the US International Development Finance Corporation (DFC). The DFC is lending up to $500 million to First Solar to build a solar manufacturing facility in India. First Solar’s cadmium telluride thin-film technology is an alternative to crystalline silicon, an industry now dominated by China. Currently, China is a global leader in clean-energy technologies, controlling over 60 percent of global manufacturing in every step of the solar supply chain.
In an era of rapid technological and environmental change, the Biden administration is seeking to secure US leadership in renewable energy technologies, emerging green industries and high-tech manufacturing in the coming decades. President Biden’s climate plan commits the US to achieve net-zero emissions, economy-wide, by no later than 2050. The climate plan incorporates the notion of ‘Make it in America’: bolstering domestic supply chains to position the US to export domestically-made clean energy products — like EV batteries — around the world. This is a clear counter to China’s ‘Made in China 2025’ initiative, which strives to secure China’s position as a global powerhouse in high-tech industries.
The modernisation of infrastructure and renewable energy transition that’s underway in the US is both about addressing and mitigating climate change, and long-term energy security. Most importantly, these initiatives are part of the broader dynamics of the geopolitics of infrastructure, with the US ensuring its dominance in global value chains for clean energy technologies in the coming decades.
So What? Opportunities for Australian businesses and investors
In an era of strategic competition, climate change and rapid technological change, Australian investors and businesses need to carefully navigate geopolitical challenges to capture future opportunities in infrastructure. Investors can play a strategic role in addressing gaps in critical infrastructure.
Over the past decade, Australian-based investors have increasingly invested in everything from US toll roads to ports. A key aspect to the implementation of this historic investment in US infrastructure for Australian businesses has been via Public/Private Partnerships (PPPs). Australia has a long history of employing PPPs to build infrastructure such as roads and bridges and has also privatised previously publicly owned infrastructure (e.g. airports, ports, telecommunication and energy assets). The private sector now owns and operates these infrastructure assets. In contrast, the US has historically kept most of its infrastructure publicly owned.
The privatisation of US infrastructure could unlock significant opportunities for Australian investors. Major Australian investors — especially our superannuation funds — are preparing for a flood of public assets being offered for sale, and for governments to work alongside the private sector to build new projects.
Our thanks to Dr Paul Belensky, KPMG Alumni in the research and preparation of this article.