US President Donald Trump embraces foreign aid to counter China's global influence

The effort is part of a sweeping attempt by US President Donald Trump's administration to prevent China's economic and political dominance.
The effort is part of a sweeping attempt by US President Donald Trump's administration to prevent China's economic and political dominance.PHOTO: EPA-EFE

WASHINGTON (NYTIMES) - 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.

With little fanfare, Mr Trump signed a Bill a little over a week ago that created a new foreign aid agency - the US International Development Finance Corp - and gave it authority to provide US$60 billion (S$82.6 billion) in loans, loan guarantees and insurance to companies willing to do business in developing nations.

The move was a significant reversal for Mr Trump, who has harshly criticised foreign aid from the opening moments of his presidential campaign in 2015.

Since becoming president, Mr Trump has proposed slashing US$3 billion in overseas assistance, backed eliminating funding for the Overseas Private Investment Corp (OPIC) and taken steps to gut the US Agency for International Development, the State Department agency that dispenses US$22.7 billion a year in grants around the world.

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.

China has spent nearly five years bankrolling a plan to gain greater global influence by financing big projects across Asia, Eastern Europe and Africa.

Now, Mr Trump wants to fight fire with fire.

"I've changed, and I think he's changed, and it is all about China," said Republican Representative Ted Yoho, who helped sell the plan to other conservative Republicans in the House Freedom Caucus, which has historically opposed foreign-aid programmes.

"My whole impetus in running for Congress in the first place was to get rid of foreign aid. It was my thing," said Mr Yoho, chairman of the House Foreign Affairs Subcommittee on Asia and the Pacific.

"But if we can reformulate and modernise it, yeah, I have no problem with that. There are people who want to do this for humanitarian aid, fine. There are people like me who want to do this for national security, like me, fine."

The effort is part of a sweeping attempt by the Trump administration to prevent China's economic and political dominance.

Mr Trump has already imposed tariffs on US$250 billion in Chinese goods as punishment for Beijing's trade practices, which he says put US companies at a disadvantage.

Last week, his administration 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 US technology and trade secrets.

And the administration said last week that it would sharply restrict exports of civilian nuclear technology to China.

The new bipartisan push to increase foreign aid began under the Obama administration, but it was rebranded as a means of competing with China's "Belt and Road Initiative" which has a goal of distributing US$1 trillion in construction aid and investments to more than 100 countries.

 
 
 

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. Last month, President Xi Jinping said China would provide US$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.

"The whole point of China's activity is building things no one else wanted to build - rail lines between African countries that hate each other, roads in bad terrain, power plants that are never going to make any money," said Mr Derek M. Scissors, a resident scholar at the American Enterprise Institute who studies the Chinese and Indian economies.

"If a country can't pay, they will take assets they want," he added. "But they aren't setting a debt trap. This is about expanding their reach and exercising passive power."

The US initiative is far less ambitious. But it "allows us, at least, to compete", said Mr Tom Hart, North America executive director of ONE, the development non-profit that musician Bono helped found.

The new agency will supplant the OPIC, established in 1971 as a lending facility to encourage US 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.

OPIC has earned millions of dollars each year for the Treasury Department, the result of a conservative investment strategy including loans to US corporations for relatively low-risk projects, such as a US$400 million loan to General Electric, Bechtel and other investors in 2015 to build Egypt's biggest petrochemical plant.

The new US$60 billion aid programme was tucked into a five-year reauthorisation of the Federal Aviation Administration, and its passage was the product of a quiet, bipartisan effort.

It included ONE, the Brookings Institution, conservative House members like Mr Yoho and Commerce Secretary Wilbur Ross. It was led by Mr Ray Washburne, president of OPIC and a top Republican fund raiser from Texas.

OPIC, like most other foreign development agencies, has come under heavy fire from the right, which has argued that such assistance is a waste of federal resources and a form of corporate welfare. During President Barack Obama's second term, the Republican-controlled House balked at reauthorising the agency.

During his presidential campaign, Mr Trump vowed to "stop sending aid to countries that hate us".

"I'm astonished, to be honest. I still can't believe we got it done," said Democrat Senator Chris Coons, who sits on the Senate Foreign Relations Committee.

"We've been working on this since 2015. It is basically the same proposal we had under the Obama administration. We rebranded to focus it on China."

The agency contains new accountability measures and includes reporting requirements to prevent gender discrimination and the use of child labour, but it is otherwise similar to its predecessor.

Shortly after being picked as budget director last year, Mr Mick Mulvaney - with the president's enthusiastic support - proposed slashing the State Department's foreign-aid budget by one-third, a plan that zeroed out OPIC's budget.

"It is not a soft-power budget," Mr Mulvaney explained at the time. "This is a hard-power budget."

Soft power has, however, proved hard to kill.

 

Congressional Republicans rejected Mr Mulvaney's cuts. And Secretary of State Mike Pompeo fought Mr Mulvaney's attempts to claw back US$3 billion in foreign aid spending this year, telling Mr Trump that the cuts would weaken the country's position in the world and his own standing with the department's pro-foreign-aid career staff, according to two administration officials with knowledge of the exchanges.

In the end, Mr Yoho sold Mr Mulvaney on supporting the expansion of the investment fund, arguing that its expansion would probably cost taxpayers nothing.

Republican Senator Bob Corker, chairman of the Senate Foreign Relations Committee, emphasised that the initiative represented a strategic shift. Mr Trump seems to be learning that the projections of military power alone will not be enough to compete with China, he said.

"We're seeing what China is doing throughout Africa and South America, especially Venezuela, and people are waking up and realising we have to have involvement with the countries, not just for a return on investment, but to move them toward a market-based approach," said Mr Corker, who is not running for re-election. "So much of our foreign policy now is focused on trying to check China, especially their nefarious activities."

Significant questions remain about how the fund will operate in its new expanded form. The key to its success, development officials said, is to create a new system that will carefully vet investments for maximum economic and political impact - and to ensure that projects don't fail as a result of corruption and mismanagement, a problem that has plagued China's investments in Malaysia and elsewhere.

A bigger question is whether it will do anything to reduce China's global influence.

"I'm pretty sceptical," Mr Scissors said. "The whole concept is that we give more money to big players who make investments in places where they don't lose money. We've finessed the public relations problem. But we aren't really competing with the Chinese."