The trade costs of getting a “D+” on infrastructure
Published 06 August 2020
A country's system for moving goods — from the highway to rail, from the seaport to the airport — are intimately tied to economic growth through trade. Infrastructure investment will be key to renewal and recovery in the post-pandemic period.
A failing grade
The American Society of Civil Engineers regularly evaluates the nation’s infrastructure needs, grading the quality and condition of the infrastructure system through its report card. The latest grade is D+.
At 13th in infrastructure quality, the United States ranks behind many of its biggest global competitors, according to the World Economic Forum Global Competitiveness Report. US infrastructure needs more than a boost. A substantial multi-year investment of approximately US$2 trillion is needed to close a 10-year investment gap.
From commuters to truckers to farmers, everyone pays the price for continued inaction. That includes America’s manufacturers who rely on every type of infrastructure to keep production operational, profitable, and globally competitive. Modern manufacturing depends on robust and integrated supply chains, the reliability of which depend on healthy infrastructure systems. One does not function effectively without the other; both must operate with a high level of precision to maximize productivity.
A drag on recovery and growth
Every day, manufacturers accept raw materials and other inputs via truck and rail to process them into finished materials. End products such as finished chemicals, machinery, autos and now—even more pressing in today’s COVID-19 response—cleaning products, essential household items, medicines, vaccines and personal protective equipment, all leave manufacturing facilities around the country to be transported to customers both here and abroad.
Insufficient or inefficient infrastructure can raise businesses’ transportation costs, putting a dent in US manufacturing competitiveness and adding to the costs of trade. As one manufacturer recently explained in congressional testimony, “If ports are clogged, trucks are delayed, power is down, or the internet has a lapse, productivity and customer service are impacted. Across the manufacturing sector, transportation logistics matter, and congestion—whether at a port or on a crowded highway—is waste that drives the consumer’s cost up like a hidden tax.”
The manufacturing sector accounts for 11 percent of US GDP and manufacturers in the United States would like to see that footprint expand. Investments in transportation infrastructure that improve freight connectivity, capacity, performance and flexibility can help manufacturers expand sales at home and around the world, helping to lead US economic recovery and renewal.
Connected and energized
The infrastructure challenge is not limited to physical assets like roads and bridges. Continued investment and modernization of our nation’s broadband and wireless infrastructure is also critical to the success of today’s manufacturer. Technology is now embedded in all aspects of production as well as in the finished products themselves.
Manufacturing equipment is increasingly connected to the internet, making shop floors dependent on robust broadband networks. Innovative technologies have enabled a tremendous competitive advantage for US manufacturers, and underscore the extent to which manufacturing and services are now intertwined. Manufacturers already invest in the most advanced and secure technology solutions to support their operations and products. Without a regulatory and policy environment that paves the way for additional investment in broadband and telecommunications infrastructure, manufacturers risk losing their competitive edge.
Similarly, for many manufacturers, energy is the largest and most important cost. The renaissance in US energy production in all its forms—most notably natural gas—has not only kept energy costs low but also driven major new investments in manufacturing sectors. The nation’s network of pipelines, the electric grid and other energy infrastructure need to keep pace.
Manufacturers also require regulatory and fiscal policies that incentivize continued reinvestment of private capital in these infrastructure systems. Rail, energy and telecommunications infrastructure differ from other infrastructure sectors because they are almost entirely privately owned and operated. For example, private investment in freight rail has grown in recent years, averaging close to US$25 billion annually. Burdensome regulations that create excessive red tape make project costs unaffordable and discourage private-sector investment in infrastructure, limiting the ability to innovate.
Bridging the gap in public awareness
Many often miss the link between infrastructure investments and their daily lives. Heavy traffic when driving to work and the grocery store or delays in a delivery are just accepted as the norm—rather than seen as a consequence of underinvestment.
Yet the public routinely and unknowingly pays for the hidden costs of congestion, increased vehicle maintenance and permitting delays. Average citizens are often complacent about the condition of infrastructure because, for the most part, it continues to work—just not as well as it should.
The same may be true for the level of understanding about the link between modern infrastructure and a nation’s ability to competitively trade with the world. A country’s system for moving goods – from the highway to the rail, from the seaport to the airport – are intimately tied to economic growth through trade. For both reasons, the United States is long overdue for historic and transformational investments to ensure its core infrastructure makes the grade.
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