Leibowitz on Trade: Congress Tees Up Infrastructure

This year, all eyes are on the pandemic and the need for economic stimulus. Democrats have their sights on some new priorities. In addition to roads, bridges and mass transit, the House Democrats’ bill includes provisions to reduce the country’s carbon footprint, housing improvements ($100 billion), broadband internet improvements (also $100 billion), clean drinking water ($25 billion) and the U.S. Postal Service (also $25 billion), which has been near death for several months. 

President Trump has announced that he will propose a $1 trillion infrastructure bill this summer. The president is running for re-election, of course, and wants to stimulate the economy before the campaign heats up. Some question Democrats’ willingness to give the president a win on infrastructure because it could boost his chances for re-election. Reports are that the president wants a 10-year highway bill, plus measures to expand internet access, especially in rural areas. 

However, the Republican-controlled Senate’s enthusiasm for infrastructure has been less than euphoric, to say the least. While infrastructure spending can be a material boost to the manufacturing economy, which has suffered the loss of more than 1.3 million jobs this year due to the coronavirus pandemic and related causes, Republicans worry more than Democrats about how to pay for all this spending. So far, no new ideas have surfaced about that.

Republicans in the House and Senate are cautious about bills that would explode the deficit—and Republicans are decidedly uninterested in tax increases to pay for infrastructure. Some Senators on the powerful Finance Committee are more focused on further programs addressed to the coronavirus pandemic than on infrastructure. 

The introduction of the House bill featured essentially no input on the contents from House Republicans. Many of the priorities embraced by the Democrats in their bill are, to put it mildly, not shared by Republicans in the Senate. Climate change measures, broadband access and the Postal Service are lower on the Republicans’ list than the Democrats’. 

For this reason, the exercise of putting forward legislation looks like it may be an attempt to tee up a political issue rather than to solve a problem. Neither party spends time cultivating the other to get something done. 

The House is scheduled to vote on the infrastructure bill before the July 4 recess. During the recess, observers can take a look at what is likely to happen to the bill in the Senate.  To date, Senate Majority Leader Mitch McConnell (R-Kentucky) has not revealed that body’s priorities. 

The steel industry is, beyond doubt, very interested in the infrastructure bill. Steel is a major beneficiary of government spending on infrastructure and, due to Buy America requirements for government spending projects, domestic producers receive a price advantage over foreign producers in many instances. The American Iron and Steel Institute and the Steel Manufacturers Association are both enthusiastic supporters of major spending on infrastructure. 

There is a Buy America requirement in the new House bill, which cites a regulation regarding the definition of steel “produced in the United States” that dates from 2009. Steel must be produced in the United States in all of its production steps, except processes that involve refining steel additives. However, components made in the United States count toward Buy America regardless of where their “sub-components” come from. The domestic preference for steel is strongest in transit spending than in highways, airports and seaports. But all projects enjoy some measure of preference for domestically produced steel. 

Infrastructure spending looks like yet another example of political gridlock. Both parties agree that our infrastructure is decaying at an increasing rate. Roads, bridges, airports, buses, subways and other public works are in increasingly desperate need of refurbishing. Why can’t Democrats and Republicans agree on a way to move forward? Mostly, it is because of the strength of each party’s base, which prefers gridlock to compromise on these and other issues. 

The infrastructure soap opera looks to be in danger of losing out to political gridlock yet again. The House and Senate look deadlocked—and the president’s proposals do not enjoy strong support even in the Republican-controlled Senate, due mostly to budget issues. With all the competing priorities in this Year of the Pandemic, the likelihood of passage for a major initiative on infrastructure appears pretty remote right now. 

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