黑洞社区

While the election of Donald Trump as the 45th president of the US may have shocked much of the UK public, in the US itself continued street protests demonstrate feelings that run even higher. Hanif Kara, founding director of engineer AKT II, was in Boston in the US shortly after the vote, where he has a visiting professorship. 鈥淎t Harvard, they were offering students counselling last week. The educated class there is literally in grief,鈥� he said.

For many, it is easy to see why Trump鈥檚 victory is such an unwelcome surprise. During his campaign, he targeted the votes of white working class Americans with what many saw as divisive smears against Mexicans and Muslims, while pledging to build a wall to keep out undesirables.

Economically, he has threatened to impose huge import tariffs on foreign firms working in the US in a bid to protect American jobs, while his proposed massive tax cuts will overwhelmingly help just the very wealthiest Americans. He believes climate change is a Chinese hoax, has spoken approvingly of the use of nuclear weapons and waterboarding, and has said he would 鈥渢ake out鈥� the families of terrorists.

Is this a man who鈥檒l deliver on what he promised in the election battle? if so, we鈥檙e in for a very, very volatile period

Steve Beechey, Wates

However, from the point of view of the development and construction world, Trump鈥檚 election is a much more mixed prospect. A real estate developer by profession, he can be expected to have sympathy with an industry that provides the kind of skilled blue collar jobs his supporters crave.

The markets, too, reassured by a seemingly less confrontational Trump since the election, have not dived, betting his protectionist approach will not be realised while greedily eyeing up game-changing corporate tax cuts (potentially from 35% to 15%).

Most encouragingly, he used his election victory speech to underline his pledge to kickstart a $1tn infrastructure investment programme to upgrade the US鈥檚 creaking transport and energy networks.

The opportunities for the US construction industry from his election are therefore obvious 鈥� hence shares in Balfour Beatty, the only UK contractor with a significant US presence, rose 10% on his election and have kept most of those gains.

So, while Kara鈥檚 sentiment that 鈥渁s a human being I鈥檓 really worried鈥� may personally be shared by many in the UK, what does Trump鈥檚 election mean 鈥� if anything 鈥� for the construction industry in the UK?

黑洞社区 America great again

The focus of Trump鈥檚 victory speech was his intended 鈥渞ebuilding鈥� of America, a $1tn programme referred to frequently in his campaign speeches. Trump said: 鈥淲e are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We鈥檙e going to rebuild our infrastructure 鈥� and we will put millions of our people to work as we rebuild it.鈥�

We鈥檙e seen as people who take care over the design of infrastructure. A lot of the regional work will be done by US firms, but the high end is a real opportunity

Hanif Kara, AKT II

Like much of his programme, however, there is little detail around what he proposes, and much scepticism whether he can deliver. Partly this is down to the fact that current president Barack Obama鈥檚 attempts to use infrastructure spending as an economic stimulus have been opposed by a fiscally conservative congress which has been focused on reining in government spending, and came to the brink of shutting down the federal government in 2011 over the size of its budget deficit.

Graham Robinson, director of Global Construction Perspectives, says: 鈥淭he numbers don鈥檛 really work for the economy 鈥� the majority of infrastructure in the US is state funded and the US can鈥檛 really afford the level of investment he鈥檚 talking about鈥� 鈥� particularly if he also rolls out his promised deep tax cuts.

Hence the idea, in so far as it is understood, is to use government money 鈥� around $140bn 鈥� to leverage private sector investment, something that is a more novel idea in the US than the UK.

An analysis of Trump鈥檚 plans published in October by two of his key advisers, Wilbur Ross and Peter Navarro, suggests a financing model whereby the government supports private funders鈥� equity stake in infrastructure projects with a generous tax credit 鈥� a subsidy that it suggests will be offset by the additional income and corporate taxes from the people and contractors working on the project, making it revenue neutral. This model of private finance for public infrastructure, if used, therefore increases the chances of the plan getting congressional approval 鈥� while also providing a vital opportunity for UK firms to get in on the game due to the UK鈥檚 long experience of PPP.

Protective stance

This is key because, outside the headquarters of Balfour Beatty, there is likely to otherwise be little hope UK contractors, few of which do any work at all in the US, would stand a chance of benefiting.

AKTII鈥檚 Kara says: 鈥淸The industry] won鈥檛 get in on any of the infrastructure construction work.鈥�

This is partly because of the maturity of existing US construction firms, and partly because of the way the US market has always been structured. It is already reasonably protectionist and with Trump鈥檚 鈥淎merica first鈥� rhetoric, it is reasonable to assume the US will take an even more protective stance toward ensuring as many jobs as possible go to its home-grown firms.

鈥淵es, there will be a protectionist agenda,鈥� agrees GCP鈥檚 Robinson. 鈥淵ou can鈥檛 just pitch up and start a business.鈥�

This is a great opportunity to showcase the UK鈥檚 quality and innovation developed in programmes like Thames Tideway and the Olympics

Paul Dyson, Hill International

He nevertheless maintains there will an opportunity for UK specialist expertise. 鈥淚n the detail of it, how is he is going to deliver if not with overseas firms?鈥� While contractors may see little benefit, Kara says the big opportunity is for engineering and architectural design firms. 鈥淚n design, we will gain a lot. The skills from this part of the world are very appreciated over there. We鈥檙e seen as people who take care over the design of infrastructure. A lot of the regional work will be done by US firms, but the high end is a real opportunity.鈥�

Paul Dyson, head of programme advisory at US-based consultant Hill International, adds: 鈥淭his is a great opportunity to showcase the UK鈥檚 quality and innovation developed in programmes like Thames Tideway and the Olympics.鈥�

A decision to use PPP funding methods, therefore, only increases the attractiveness of UK businesses. Former Infrastructure UK boss James Stewart, now KPMG鈥檚 global head of infrastructure, says: 鈥淭he more private money the better for the UK. It鈥檚 possible the US could emerge from this as a much bigger market.鈥�

There are also hopes, following Trump鈥檚 pro-Brexit rhetoric during the campaign, which included a pledge to work quickly to conclude a trade deal with the UK, that the Trump presidency could even provide a renaissance in the much vaunted 鈥渟pecial relationship鈥� between the US and the UK. As Kara says: 鈥淭his could be positive if we become Trump鈥檚 鈥榮pecial Europeans鈥�.鈥�

Many, however, are sceptical that all or any of these benefits will actually accrue. Steve Beechey, group strategy director at Wates, says: 鈥淯nder Obama鈥檚 presidency we鈥檝e had no real special relationship at all. If it was defrosted, it would have all sorts of positive benefits to the UK. But after Brexit we鈥檙e on the back foot 鈥� we鈥檙e out looking for trade deals and we鈥檙e not a beach head into the EU any more.鈥�

Questions over trade wars

If the infrastructure programme goes ahead, it will be unlikely to gather steam until 2018 at the earliest, a US director at consultant Gleeds told 黑洞社区 last week. Even if it then does provide a boost to UK firms, in the short term much more important could be the impact of Trump鈥檚 election on global economic confidence.

Trump鈥檚 pledges to slap high import tariffs on goods from countries such as Mexico and China, as well as pledges to renegotiate or withdraw from a series of free trade agreements, have sparked fears trade wars could plunge the world into global recession. Mark Essex, director of public policy at KPMG, said earlier this month that: 鈥淚f he follows through on his rhetoric 鈥� the cumulative effect for the global economy could well be recession and trade wars.鈥�

In the detail of it, how is he is going to deliver if not with overseas firms?

Graham Robinson, Global Construction Perspectives

Whether this happens depends to a large extent which Donald Trump turns up at the Oval Office on 20 January next year. Wates鈥� Beechey says: 鈥淚s this a man who鈥檒l deliver on what he promised in the election battle? If so, we鈥檙e in for a very, very volatile period.鈥� However, Construction Products Association economics director Noble Francis says: 鈥淭here鈥檚 a clear distinction between what he said in the campaign and what expectations are that he鈥檒l actually do.鈥� Likewise, Robinson says: 鈥淚 don鈥檛 think we鈥檙e going to really see trade tariffs of 35-40% because of the risk of sparking massive US inflation.鈥�

The problem for the construction industry is that, given the degree to which development decisions depend upon market confidence, it won鈥檛 necessarily need an actual global downturn to hit construction output 鈥� just the fear of one. Beechey says that, while Trump鈥檚 election won鈥檛 on its own cause developers to halt schemes in the way Brexit has, it will increase risks in an already economically uncertain situation. 鈥淭hey will be looking at their risk matrices as this is the sort of thing that will affect confidence. If developers aren鈥檛 confident, then they won鈥檛 invest 鈥� but it鈥檚 so early, we don鈥檛 have any evidence yet of how they鈥檙e reacting.鈥�

Kara, likewise, believes that 鈥渟ome projects will probably fall鈥� because of nerves over the global economy sparked by Trump鈥檚 victory.

The CPA鈥檚 Francis says this risk to global confidence is exacerbated by the sense that, following Brexit, the political turmoil in the US is part of a wider trend in western nations that could see more nasty surprises in European elections next year, where support for far-right parties is growing.

鈥淭he key question is around uncertainty,鈥� he says. 鈥淲here uncertainty has its biggest impact is in people making big up-front investments in capital projects that are dependent upon a long-term return 鈥� such as commercial office towers.鈥�

Certainly, the election of Trump heralds an uncertain and worrying period across all of public life 鈥� politics, society and the economy. But Francis, who leads the creation of the CPA鈥檚 construction industry forecasts, isn鈥檛 so far anticipating changing his outlook a jot. 鈥淎ny changes we make are much more likely to be down to what comes out of the Autumn Statement. We won鈥檛 be altering things because of Trump鈥檚 rhetoric 鈥� which is still just rhetoric for the moment.鈥�

So while Trump鈥檚 election may be a cataclysm for liberal America, it鈥檒l be a while before it鈥檚 clear if it鈥檚 a cause for despair in the UK construction industry too.