President Trump recently signed a bill bringing a new foreign aid agency into life, the “U.S. International Development Finance Corp.” The newly established foreign aid agency has the authority to provide US$60 billion in loans, loan guarantees, and insurance to companies daring enough to do business in developing countries. Close observers have coined Trumps’ recent move as being a significant reversal for him since, in the past, he has harshly criticized foreign aid.
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The new agency will replace the Overseas Private Investment Corp. (OPIC), which was established in 1971. Back then, its purpose was to function as a lending facility to encourage U.S. companies to invest in developing countries. The new foreign aid agency will have twice the overall lending capacity its predecessor had. However, the way the old and new lending facilities are financed will stay the same. The new entity, like the old, is funded mostly through fees.
Why the sudden change of heart?
Some believe Trump wants to “fight fire with fire.”
The U.S. president’s change of heart has less to do with a sudden embrace of foreign aid than with 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.
The effort is part of an attempt by the Trump administration to prevent China’s economic and political “world-dominance.” Trump has already imposed tariffs on US$250 billion worth of Chinese goods, some say, as punishment for Beijing’s trade practices, which he says put U.S. companies at a disadvantage.
RNew foreign aid agency repackaging old intentions
The new push to increase foreign aid had its beginnings under the Obama administration, but it was rebranded as a means of competing with China’s “One Belt, One Road” initiative, which has the goal of distributing US$1 trillion in construction aid and investments to more than 100 countries.
“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,” said Derek M. Scissors, a resident scholar at the American Enterprise Institute who studies the Chinese and Indian economies.
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.
The new foreign aid agency will have twice the overall lending capacity its predecessor had. (Image: Mikel Davis via Nspirement)
Trump previously rejected any such financial aid, which makes some people wonder why he went through with it at this point. Is it a sign that the trade war is showing its effects to the disadvantage of the U.S.?
“I’m astonished, to be honest. I still can’t believe we got it done,” said Senator Chris Coons, Democrat of Delaware.
Strong opposing headwind pushes underlying concept to the left
OPIC, like most other foreign development agencies, has come under heavy fire from the right-wing side of the government which has argued that such assistance is a waste of federal resources and a form of corporate welfare.
Important questions remain about how the fund will operate in its new updated 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 other places.
A bigger question, which stands to be debated, from a U.S. point of view, is whether the new financial aid device will do anything to reduce China’s global influence.
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