Since the Cold War ended, the United States has enjoyed relative dominance on the world stage without significant competition from international adversaries. Militarily, economically, and culturally, the past three decades reinforced American hegemony: wherever the U.S. projected itself abroad, its power was left unchecked in most circumstances. With China’s economic explosion and the increasing isolationism under U.S. President Donald Trump, this period known as Pax Americana is now grinding to a halt. Instead, U.S. hegemony is being challenged on a variety of fronts. Indeed, Americans haven’t experienced geopolitical rivalry on such a grand scale since before the fall of the Soviet Union. Now, with the Soviet Union relegated to history textbooks, a much clearer American rival is projecting its own strength some 3,600 miles east; China, and its emergence as a credible revisionist power, is forcefully trying to assert itself by spending billions of dollars to compete for global influence.
While the United States and China engage in a range of bilateral issues over the ongoing tariff war and intellectual property rights, a new front for geopolitical influence is being staged in the developing world. Under President Xi Jinping, China has used development finance as a tool to subtly nudge political outcomes in their favor. For instance, they supported a corrupt politician in the Maldives, took over the Hambantota port in Sri Lanka after the central government defaulted on Chinese debt, and used its multibillion-dollar investment in Pakistan to try swaying electoral results. Despite these reports indicating the opposite, the Chinese government continues to argue that it is strictly using the infrastructure investments earmarked under their Belt and Road Initiative (BRI) for commercial purposes. Yet, the opaque nature of BRI makes it difficult to track whether each dollar loaned to a development partner enters into a construction project or the pocketbook of a corrupt politician. Moreover, many of China’s development partners collateralize their debt precisely becausethey’re so desperate for capital. As the U.S. has steadily reduced its foreign aid spending over the years, China has stepped in to fill the void under its own terms.
Through a “no strings attached” model, China’s BRI has given loans for large infrastructure projects to low and middle-income countries across Asia, Africa, and Europe. BRI’s goals are shrouded in China’s attempt to re-create the ancient Silk Road, which once linked the country to trade posts throughout Eurasia. Although China’s economic goal may be to promote regional connectivity and boost export markets, its investments have saddled countries with heavy debt and a development partner seeking to reshape the world order in its image. In the meantime, American development institutions, such as the Export-Import Bank, have previously suffered funding cuts or outright termination, leaving Chinese institutions as the lender of choice. Though, as of October 5, the Americans re-entered the ring with a wide-ranging bill aimed at countering Chinese aid.
Packed into a bill to reauthorize the Federal Aviation Administration, Congress earmarked $60 billion for foreign aid. This money will reportedly be used to consolidate several development finance agencies into a new entity called the International Development Finance Corporation, or IDFC for short. The IDFC’s primary mission is to counter China’s growing geopolitical influence in emerging markets. By consolidating the Development Credit Authority, a branch of USAID, and the much larger Overseas Private Investment Corporation (OPIC), which had been the main government development finance entity, national security strategy and development aid will be closely intertwined. The IDFC will attempt to streamline development finance with important national security concerns over how to counter China’s all-encompassing BRI. Under IDFC, Congress is finally waking up, it seems, to the impact BRI has on trade, politics, and citizen sentiment in developing countries. However, whether the new IDFC will serve as an effective counterweight to BRI is just as important as ensuring equitable and sustainable development outcomes for emerging economies.
U.S. development finance has a polarized history when it comes to achieving its goals. Although some conservatives claim otherwise, the overwhelming majority of academics agree that international development contributes to growth in many areas. U.S-based aid, no matter where it originates from, is typically more directed at improving health, education, and agriculture compared to China’s infrastructure-focused BRI investments. Moreover, although U.S. aid tends to reinforce democratic outcomes in developing countries by supporting civil society organizations, strengthening judicial systems and multiparty elections, it does not always sway public opinion favorably towards the U.S. With IDFC now tasked with balancing both traditional development objectives and national security concerns over Chinese influence, any success of new development aid must be measured on both fronts.
A final consideration is that funding development projects is a risky proposition for President Trump. Despite the IDFC’s alignment with Trump’s overarching strategy of pressuring China and curtailing its global ambitions, conservatives are less likely to speak highly of foreign aid. Funding infrastructure in emerging economies to promote global connectivity and market efficiency is a left-leaning policy, given that it requires higher taxes, expands the government deficit, and focuses less attention on the struggling American worker. Yet many of Trump’s policies, including his China strategy, have proven to be popular amongst some within his base. The remaining question then becomes: will conservatives view Trump’s increase in development aid through the lens of a necessary national security measure to counteract China, or instead as an expensive tax that shifts resources from Americans to foreign beneficiaries? As American development financing expands under IDFC, only time will tell. If one thing is certain at the moment, however, America and China both seem to be more concerned about their own hegemonic influence than they do about ensuring that their development aid benefits the recipient country instead of harming it.