- President Donald Trump, seeking to counter China’s growing geopolitical influence, is embracing a major expansion of foreign aid that will bankroll infrastructure projects in Africa, Asia and the Americas, throwing his support behind an initiative he once sought to scuttle.
- Recently, Trump signed a bill to create a new foreign aid agency, i.e. the U.S. International Development Finance Corp. and gave it authority to provide $60 billion in loans, loan guarantees and insurance to companies willing to do business in developing nations.
- The move was a significant reversal for Trump, who has harshly criticized foreign aid from the opening moments of his presidential campaign in 2015.
- Since becoming president, Trump has proposed slashing $3 billion in overseas assistance, backed eliminating funding for the Overseas Private Investment Corp. and taken steps to gut the U.S. Agency for International Development, the State Department agency that dispenses $22.7 billion a year in grants around the world.
Why this move?
- China has spent nearly five years bankrolling a plan to gain greater global influence by financing big projects across Asia, Eastern Europe and Africa.
- The president’s shift has less to do with a sudden embrace of foreign aid than a desire to block Beijing’s plan for economic, technological and political dominance.
- The effort is part of a sweeping attempt by the Trump administration to prevent China’s economic and political dominance.
OBOR: Growing China’s geopolitical influence
- Inspired by the Silk Road, the medieval trade routes between Europe and Asia, the OBOR project will be a vast network of land and maritime routes across dozens of countries.
- It will impact 4.4 billion people.
- China’s “Belt and Road Initiative” has a goal of distributing $1 trillion in construction aid and investments to more than 100 countries.
- It is not one project but six major routes which will include several railways line, roads, ports and other infrastructure.
- China’s biggest investments are targeted to countries, like Pakistan and Nigeria, with a goal of expanding Beijing’s geopolitical power and gaining access to natural resources like minerals and oil.
- But it is also spending billions on projects in smaller countries that are less likely to turn a monetary or political profit.
- Also China would provide $60 billion in financial support to Africa, including credit lines, grants and investment financing.
- The investments have raised concerns that poor and emerging nations like Djibouti and Sri Lanka could be increasingly beholden to China, which can seize local assets if countries default on loans.
Other counter steps taken by the US
- Trump has already imposed tariffs on $250 billion in Chinese goods as punishment for Beijing’s trade practices, which put U.S. companies at a disadvantage.
- US administration also detailed a plan to use expanded powers to crack down on foreign investment in the United States, which was aimed primarily at making it harder for China to gain access to U.S. technology and trade secrets.
About U.S. International Development Finance Corp.
- The new agency will supplant the Overseas Private Investment Corp., established in 1971 as a lending facility to encourage U.S. companies to invest in developing countries, and will have twice its overall lending capacity.
- The new entity, like the old, is funded primarily through fees, and will provide loans, loan guarantees and political-risk insurance to companies willing to take the gamble of investing in developing countries.
- The agency contains new accountability measures and includes reporting requirements to prevent gender discrimination and the use of child labor, but it is otherwise similar to its predecessor.