Following a midterm election in which Republicans gained seats in the Senate but lost their House Majority to Nancy Pelosi and the Democrats, President Trump needs to manage a divided Washington to continue delivering on campaign promises and advance America’s interests, which in turn will boost his own re-election chances. As the consummate negotiator, Trump must strike fast to put Democrats on their back foot and immediately offer a deal that will aid America’s workers and economy: a Chinese funded infrastructure bill.
Right now, the American economy is rocking, maintaining 3% growth, which has pushed unemployment below 4% and wage growth to around 3%. The manufacturing sector, which has been enjoying its strongest stretch of job creation in over 20 years, is resurgent. It’s no wonder then that the GOP was able to take Senate or Governor races in manufacturing-heavy states like Indiana, Tennessee, Missouri, and Ohio. Trump needs to ensure economic growth continues to broaden out to further tighten labor markets and push wage growth higher so that all workers see their paychecks rising.
Investing in infrastructure, which enjoys broad political support, will create jobs now, and importantly by modernizing and expanding our infrastructure capacity in everything from rail to broadband, we enhance the long-term potential of our economy. Strategic infrastructure investments will boost near-term growth and employment, forcing wages higher, while also increasing wages over the long-run for all Americans. In so doing, he lays the groundwork for his own re-election. However, we can’t borrow more money to have a multi-billion-dollar boondoggle while deficits are running around $1 trillion.
And this is where China enters the picture. Trump has rightly singled out China as our top long-term geopolitical foe, and they have used unfair trading practices and intellectual property theft to amass a cumulative $4.5 trillion trade surplus with America since George W. Bush foolishly let them in the World Trade Organization (WTO). With this wealth transferred from Americans, China has rebuilt its economy and military. We have literally funded China’s rise as our top rival.
In an effort to right these historic wrongs and restore our industrial base, Trump has correctly levied tariffs on about $250 billion of Chinese imports to level the playing field and eventually force China to negotiate in good faith. From January 1 onward, these tariffs will generate about $62 billion in revenue, which currently goes into the Federal Government’s general budget and reduces the deficit. If, as threatened, 10% tariffs are placed on China’s remaining imports, the annual tariff run-rate will approach $90 billion.
Trump should immediately and publicly offer House Democrats a deal: all Chinese tariff revenue is put in a segregated trust fund (named the China Rebuilds America Fund) to invest in new infrastructure projects in partnerships with state and local governments. By making states and localities together put up 50% of the funding, you can increase accountability and double the effective size of the infrastructure program. We can cap annual federal spending from the China Rebuilds America Fund at $50 billion ($100 billion with state matches) as over time China tariff revenue will fall as companies move production back into the US, which in turn will create new jobs. By capping the fund, infrastructure spending can then continue for some time even as the tariffs are removed. Importantly, by recycling tariff revenue into productivity-enhancing projects, Trump will be offsetting any near-term dislocations caused by the China trade situation and actually accelerate economic growth.
By getting Democrats on board with this plan, Trump would show a unified front to China, which only further enhances our bargaining power to strike a new trade agreement. This is compounded by the fact that Trump’s tariffs will be funding growth-accretive infrastructure. By strengthening the economy further, there is less need for us to strike a quick deal, ensuring we get a better one. There will now be a clear benchmark for China: until they are willing to offer enough concessions to outweigh tariff revenue funding major infrastructure improvements, we have no reason to say “yes” and remove the tariffs.
By proposing the China Rebuilds America Fund, Trump can retake control of Washington, show voters he is a deal-maker, get implicit backing for his tough on China trade stance, provide tangible change to voters via better infrastructure, and boost economic growth. Additionally, he achieves two critical strategic priorities: rebalancing trade with China and modernizing American infrastructure. If Democrats don’t accept this win-win deal, it’d be a proof point to voters they are uninterested in governing and are simply the party of obstruction. Trump wins if they accept this offer because it will help America, and he wins if they say no because it will show Democrats to be hypocrites on their promises for bipartisanship.
It’s time we rebuild America’s roads, bridges, airports, and rail, and with Trump’s tough trade stance, we can have China pay for them.