SEATTLE, Washington — On October 8, 2018, President Trump signed the BUILD Act into law, marking a new era in American foreign investment in developing countries. Many people ask how foreign aid strengthens national security. The BUILD Act does so by creating a new federal agency with the strength and autonomy to address development challenges and foreign policy priorities in strategic regions.
This Agency known as the U.S. International Development Finance Corporation (USIDFC) will bring new innovative financial tools to promote economic growth, stability and improved quality of life in developing countries. The new tools at the disposal of USIDFC allow the new agency to:
- Make equity investments, loans and guarantees.
- Provide technical assistance.
- Administer special projects.
- Increase the USIDFC spending cap to $60 billion.
The legislation places a priority on lower and lower-middle-income countries with an emphasis on minority-owned businesses, small business and women’s economic empowerment. This model fills a void left by the strategies of other countries’ foreign aid policies. The BUILD Act allows the U.S. to efficiently provide private sector market-based solutions. This model’s unique service is crucial to how foreign aid improves national security.
China’s Expanded Foreign Aid System
It is critical for the U.S. to improve its foreign aid system to meet the new standard set by China. From 2000 to 2014, China spent $354.3 billion in development. It now outspends the U.S. on an annual basis. China has increased its annual aid and continues that growth today in large part due to the Belt and Road Initiative.
The Belt and Road Initiative is China’s plan to support the development of infrastructure in low-income countries in order to improve trade routes. The plan also launched a new state-sponsored development bank to help pay for these infrastructure projects. These investments are in tandem with increased Chinese aid, loans and investment in African countries. It is estimated China has spent up to $8 trillion funding these projects and investments in developing countries.
The BUILD Act as a Response
The U.S.’ new foreign aid strategy provides an alternative to the funding offered by China. In fact, the American model fills a void left by Chinese funding only large scale projects. The U.S. provides loans to small and medium-sized enterprises, a service that China does not provide. This helps local companies grow and develop the economy from a micro-level.
The BUILD Act is crucial to U.S. involvement in developing regions of strategic importance. China’s increasing influence in the economies of developing countries is a national security concern for the U.S. The impact of the U.S.’ response to Chinese investment shows how foreign aid strengthens national security. The resulting improvements in the U.S. aid system will promote the U.S. private-sector business model and Improve overall U.S. global competitiveness.
The USIDFC will act as a counter to China’s financing model, which some argue lacks transparency and completes projects under inadequate environmental and social safeguards. Furthermore, the U.S. provides a valuable service in the form of small scale lending. However, in order to truly compete with the Chinese model the U.S. must provide an attractive alternative to large state-to-state lending.
The U.S. has begun to answer the challenge set forth by China’s increased involvement in the economic systems of developing countries. The BUILD Act sets into motion a more empowered and focused foreign aid system. It is a crucial step towards a more effective foreign aid system. However, the U.S. must continue strengthening its system to remain competitive in the face of increased Chinese involvement in the economic development of strategic regions.
– Peter Trousdale