Japan to Begin Massive Investments in U.S. Infrastructure Projects

While campaigning, Donald Trump stated that improving the nation’s infrastructure was one of his priorities. For example, in August 2016, The New York Times reported that Trump said that he wanted infrastructure spending of at least twice the amount proposed by Hillary Clinton. Trump feels that improvements in infrastructure will boost economic stimulation while providing long-term benefits for the entire population. Paying for his infrastructure programs may have just gotten a bit easier for Trump — Japan has announced that it is willing to invest massive amounts of money in U.S. infrastructure projects.

What Is Japan’s Plan to Invest in American Infrastructure Projects?

Japan’s Government Pension Investment Fund, commonly called the GPIF, controls approximately $1.14 trillion in assets, and as much as 5 percent of the fund’s total assets can be invested in infrastructure projects in other countries, according to Nikkei. When American corporations incur debt to finance projects for infrastructure development, the GPIF will purchase those debts. In addition, the Japan Bank for International Cooperation and other sources may provide long-term financing for certain projects, including the construction of tracks for high-speed trains to operate between New York City and Washington, D.C., Dallas and Houston, unnamed cities in California and other routes throughout the United States. Japan’s various investments could result in the creation of 700,000 American jobs.

What Are Japan’s Motives for Investing in American Infrastructure?

Although there is an old adage warning against looking a gift horse in the mouth, it would be naïve to assume that Japan is motivated by altruism, generosity or self-sacrifice. Obviously, Japan expects to gain tangible rewards by committing billions of dollars to shoring up the infrastructure in the United States. In the days since Shinzo Abe, Japan’s prime minister, announced the plan to invest in American infrastructure, analysts have been busily evaluating Japan’s possible motives.

According to the DailyCaller.com, the Japanese government could be attempting to curry favor with the new president. Trump has not exempted Japan from his criticism of countries engaging in unfair trading practices. He has cited the trade deficit that America has with Japan and accused the Japanese government of manipulating its currency. Following his inauguration, one of Trump’s first actions was to sign an executive order that canceled participation in the Trans-Pacific Partnership, a multinational trade agreement with an extremely uncertain future but from which Japan stands to profit. There is also the issue of the Senkaku Islands; Japan and China are both claiming this group of islands in the East China Sea.

Considering Trump’s actions and criticisms, attempts to strengthen the relationship between Japan and the United States would not be surprising. The investment in infrastructure would assist Trump in completing three of his campaign promises: the creation of new jobs, bolstering the infrastructure and stimulating the economy.

However, after the February 10 meeting between Trump and Abe, the statements released by the leaders to the press placed a great deal of emphasis on trade. According to The Japan Times, the two leaders agreed to set up a “bilateral dialogue” on the issue of trade agreements and fair trade. Although the framework for the discussions have not been defined, the issue of tariff equality will likely arise as well as the issue of intellectual property rights.

The joint statement released by Trump and Abe mentioned that Japan would continue to work for regional trade advances involving existing initiatives. This seems to imply that Japan will participate in the TPP summit scheduled for March 2017; although the United States has been invited, there has been no confirmation of participation. Given Trump’s rejection of the TPP and his long-standing belief that bilateral trade agreements are more beneficial for the United States, it is unlikely that his administration will send officials to the summit. However, neither leader issued a statement regarding whether the meeting had included TPP-related matters, so it is possible — but highly improbable — that Trump could change his stance.

Japan Appears Fond of Using Investments in Infrastructure to Strengthen Bonds

The United States is not the only nation in which Japan has invested in infrastructure to forge stronger bonds. In January 2017, Japan pledged to provide approximately $8.7 billion in private investments and aid to the Philippines over the next five years. The Philippines and Japan have been long-term allies enjoying friendly relations, and while Japan’s actions will likely strengthen the bond between the two countries, Japan may have an ulterior motive for choosing to invest in the Philippines at this time.

The economy of the Philippines is projected to grow by 6.5 percent during 2017, making it one of the fastest growth rates in Asia. This makes the Philippines attractive to other nations and private corporations. President Rodrigo Duterte is reportedly planning a visit to the Middle East to seek additional foreign investments. Perhaps of greater concern to Japan is China’s pledge to provide the Philippines with $6 billion in development assistance as well as $3 billion in financing facilities. With the relationship between Japan and China show signs of increased friction, it would seem natural for Japan to seek to be seen in a more favorable light than China.

The government of the Philippines wants to use the investment in infrastructure for projects that will boost the economy and generate jobs. The scope of potential projects is broad, including road construction, improvements to sanitation and enhancements to power generation and irrigation. Government officials have expressed a desire to ensure that economic growth and infrastructure improvements benefit the majority of the population. The government has also stated that it will not lose its focus on the small business that make up the bulk of all businesses registered in the Philippines.

Will Trump Accept Japanese Investment in American Infrastructure?

Trump’s response to Abe’s offer to invest in the American infrastructure is difficult to predict. On the one hand, it would help him achieve several of his goals. On the other hand, Trump’s vow to put American interests first tends to indicate that he will not accept any offer that could leave the United States indebted to another nation. Trump is a businessman; he is likely to demand certain concessions from Japan before accepting Abe’s plan.

For example, in a statement issued after the two leaders met on February 10, the matter of Japan’s defense was addressed. The leaders apparently agreed that Japan will assume more responsibility for its defense, while the United States would increase its military presence in the region.

Trade agreements, infrastructure projects and economic growth are complex topics. If you would like to learn more about these topics, you will find many educational articles at the Personal Money Store.

Other recent posts by bryanh

Reasons for hope: The Economy is Finally Poised for Serious Growth

The election of Donald Trump sparked a deluge of drama that began long before he was inaugurated and continues through today. Media reports have been filled with debates over Trump’s candidates for cabinet posts, allegations that Russia hacked the election, questions about the Trump family’s business dealings and the new president’s phone calls with foreign

Gold Soars as Dollar Continues in Record-setting Decline

Changes in the economy are neither simple to understand nor entirely predictable. Virtually every metric that is used to evaluate the economic health of a nation can be influenced by a variation in another metric. For example, consider the price of gold. Typically, when the dollar shows a pattern of a record-setting decline, gold prices

Like it or Not, Trump Holds True to His Word on Economic Policies

During a presidential campaign, candidates make dozens or even hundreds of promises. In recent years, the American people have become increasingly cynical about campaign promises; no president in recent history has kept ever promise made during the election cycle. However, thus far, President Trump has demonstrated that he plans to remain true to his word