The G7 infrastructure partnership is a step in the right direction

The Biden administration’s new China-focused global infrastructure initiative, announced at this week’s G7 summit, is more than just a policy program. It is a historic breakthrough and could become a clear alternative to China’s Belt and Road Initiative (BRI). 

The $200 billion investment program advances the administration’s China policy of “invest, align, compete,” puts infrastructure at the heart of foreign policy and leverages it to restore American foreign policy in a constructive way.

This is long overdue. The U.S. was once preeminent in infrastructure at home and abroad. But since 1980, China has assumed leadership, investing 8 percent of its GDP in infrastructure compared to 1 percent for the U.S. China has used the investment to lift its population out of poverty, launch its export economy and sustain its domestic infrastructure industry through Belt and Road. 

Our underinvestment in infrastructure has left us unable to compete with China or anyone else.

The $1.2 trillion Infrastructure Investment and Jobs Act is a generational investment that helps restore U.S. competitiveness. But unlike the act, which is entirely government-funded, the global infrastructure initiative takes a different approach by including private investment. This is the right and necessary long-term funding solution for infrastructure. But to make it truly effective, several steps are necessary:

• Invest in U.S. infrastructure first. Strong domestic infrastructure makes for a strong sustainable foreign infrastructure strategy. The Infrastructure Investment and Jobs Act is not large enough to address all our needs. Private investment is required, for example by U.S. pension funds. If the private sector cannot readily invest in our own infrastructure, why would it invest internationally?

• Encourage our G7 partners to invest in U.S. infrastructure. Congress should immediately remove taxes that discourage foreign capital from investing in U.S. infrastructure. The proposed partnership focuses on climate change and other key areas. But we can also attract private investment and advance the global partnership via a U.S. global sustainable urban technology and innovation fund — one that promotes our venture capital industry andplay a key role in the tech-enabled growth of global mega-cities such as Jakarta, Manila, Mumbai and Mexico City.

• Give the private sector the right tools. If the private sector is to participate in the global infrastructure partnership, it will need support. This must include political risk insurance through G7 development agencies — similar to what Chinese companies receive from their government. The U.S. International Development Finance Corporation (DFC) should be given the necessary tools to compete. This entails making it a government-sponsored enterprise with an independent board and equity capital of at least $100 billion — sufficient to make a real difference.

• Strengthen existing multilateral institutions instead of constantly criticizing them and marginalizing them. The U.S. has traditionally played a key role in multilateral agencies such as the World Bank where it has effective veto power, as well as in other international organizations that have a direct impact on global infrastructure, such as The World Health Organization, the International Labor Organization, the United Nations Development Program, or the International Maritime Organization. But over the last decade, the U.S. has taken, at best, a passive role; at worst it has abdicated its leadership to the benefit of others. We must reengage if we want the global infrastructure initiative to be successful.

• Compete with China in some areas but cooperate in others. No program, not even the G7 initiative, can match China’s long-term infrastructure investment. We should adopt co-opetition, not confrontation with China. We should redouble our efforts to encourage China to bring Belt and Road closer to the international rules-based system and leverage multilateral institutions, as well as our own Development Finance Corporation, to cooperate when we can and compete when we must. We should also reverse a mistaken 2015 decision, join the Asian Infrastructure Investment Bank and work within the institution to drive further global integration.

These steps add up to a unified domestic/foreign policy strategy, with infrastructure at its heart. It can benefit the U.S. economy, strengthen our global strategic presence and put our relationship with China on a more stable footing — all with the support of the private sector, a strong message to deliver on behalf of Western democracies. If managed correctly, it can be a victory for all concerned.

Sadek Wahba, Ph.D., is a member of the Council on Foreign Relations and of the Global Advisory Council of the Wilson Center, the U.S. nonpartisan policy forum for tackling global issues, and a senior fellow of NYU’s Development Research Institute. He is also chairman of I Squared Capital. The views expressed do not necessarily reflect those of these organizations.