Major issues
With a rising People’s Republic of China (PRC) and a revisionist Russia, the United States finds itself in a moment of renewed great power confrontation. Given its massive military, economic, and development power, the PRC poses a unique challenge. Economic means, such as development financing (including international aid), investment and trade, and digital technology, will be significantly more important in contending with the PRC.
The US has historically depended on international aid to achieve geopolitical goals; in dealing with the PRC, it should remember its history. Good development policy must be at the heart of US assistance in strategic situations, as history has shown.
In contrast to the People’s Republic of China, the United States has a compelling development strategy based on transformation rather than transaction.
The Biden administration is operating in a drastically altered foreign environment. Climate change, the persisting Covid-19 pandemic, an aggressive PRC, and a revisionist Russia are all concerns that demand a robust, diversified reaction from the US.
The PRC has actively used a combination of economic, commercial, and economic instruments to provide a clear alternative to the United States and its partners in Sub-Saharan Africa, Southeast Asia, southern Asia, and other emerging regions. The Biden administration is working on new ways to deal with the People’s Republic of China, but it needs a framework that uses foreign aid, official finance, and other economic weapons to fight the PRC’s influence and reclaim its leadership role. To do so, the Biden administration must recall instances during the Cold War when the US government successfully employed foreign assistance to achieve geostrategic goals.
First and foremost, it should prioritize good development practice in any reaction that involves international assistance. Foreign assistance allowed economic growth, poverty reduction, and ultimately representative government during the Cold War when the US had a long-term approach, engaged local governments and partners, and aligned with local development objectives. The State Department and USAID should make this apparent as the United States’ development model. They should make it clear that not all US foreign assistance will be viewed through the prism of opposing the PRC, but that there will be times and places where it will be. However, a model and framework will be insufficient; funding and programming will be required.
Second, the government should place a high priority on industries and locations that are strategically essential or where the US has a competitive edge. Existing foreign assistance programs may be terminated in some cases due to reprioritization if they are not strategically vital. With Congress facing a substantial rise in the deficit and overall government debt as a result of Covid-19 and new proposed domestic spending projects, the atmosphere for large increases in foreign assistance is difficult. If Republicans retake Congress in the 2022 midterm elections, they are unlikely to support major spending increases, though it is worth noting that bipartisan support for foreign aid prevented drastic cuts under the Trump administration. In light of this, the administration should conduct a review of existing US assistance programs worldwide.
Third, while the US should pick where it spends its foreign aid, the government should pursue — and Congress should grant — a modest increase in the topline international funding budget. In its FY 2022 budget request, the Biden administration properly requested an increase of just under $7 billion; it is likely that Congress will approve this when it completes its budget negotiations in the coming weeks. However, this is insufficient, and the administration should seek an increase in FY 2023. To ensure a continued robust response to the Covid-19 epidemic, such an increase should be addressed to flexible spending accounts within the State and Foreign Operations budget.
Fourth, the government should endeavor to build a broad range of financial measures to confront the PRC, in addition to increasing overall foreign assistance. This will entail examining all aspects of US official funding, including the DFC, ExIm, sovereign loans and loan guarantees, as well as USAID’s soft and concessional loans. Importantly, loans granted by USAID and other federal agencies do not require dollar-for-dollar assistance; instead, Congress would need to appropriate a certain amount of money to cover the “subsidy” cost of a concessional rate loan. This means that USAID may provide significantly more funding without having to request a significant increase in the State and Foreign Operations fund.
