Beyond the Belt and Road
The US has a path to outcompeting China by taking a long-term, people-centric approach
The first Trump administration had a complicated record on competing for influence with China in developing countries, a pattern which looks set to repeat in the second with an early executive order to pause foreign aid. Its officials lived up to the cliche of American sermonizing against China’s “debt diplomacy” while seeking to cut its own foreign assistance budget. At the same time, it launched the US International Development Finance Corporation (DFC) and empowered it with resources and authorities that exceeded its predecessors. These constructive efforts have already made a difference. But to go from catching up to outpacing China in offering a compelling development approach, the US must be more clear-eyed about its sources of strength and how to better leverage them, prioritizing long-term, people-centric investments that create enduring ties to the United States.
Reauthorizing DFC
In the four years since DFC has launched, it has deployed $50 billion across some 114 countries. As the deadline for reauthorization approaches this year, it is seeking to double its maximum contingent liability to $120 billion, greater flexibility in how it accounts for equity investments, and the ability to operate in an expanded group of strategically important countries.
President Trump should cement this aspect of his legacy by ensuring DFC’s successful reauthorization. Doing so would make a meaningful contribution towards the estimated $4 trillion annual funding gap in developing countries. It would also mitigate the risk of instability and its inevitable spillovers to American interests and security, secure access to new markets and resources, and partially rebut China.
Instead, the administration is reportedly interested in transforming the DFC into a strategic wealth fund, echoing a similar proposal late in the Biden administration. This approach has potential benefits, but the risk of politicization—especially under this administration—calls for careful consideration. The DFC can best serve America and the world by remaining focused on its development mission. For strategic investments, the administration should start by consolidating and rationalizing existing sub-scale pools of money that currently exist across government, such as the Department of Energy’s Loan Program’s Office.
An evolving challenge
But to compete head-on against the Belt Road Initiative is a fools game. That is not only because the US government practically will not commit the equivalent resources, particularly on projects no reasonable amount of government backing can make economically rational, but because the Belt and Road Initiative itself is evolving. In 2023, Beijing announced a pivot from large-scale infrastructure projects to 'small and beautiful' initiatives focused on delivering faster and more tangible benefits across economic, social, and environmental dimensions. China’s shift creates an opening for the US if it can marshal a combination of directly competitive, asymmetric, and adversarial approaches. These will require it to better leverage the latent strengths of its international partnerships, its private sector and domestic market, and soft infrastructure.
Leveraging partners
While there is almost universal agreement of the need to reform multilateral institutions such as the World Bank and IMF, there is little consensus on how. For that reason, it is better to focus in the near-term on the G7 group of developed nations directly, as the Biden administration sought to do with the Partnership for Global Infrastructure Investment. But whereas the Biden administration sought to induce new financial commitments that largely did not materialize, the Trump administration should seek to foster closer coordination of each countries’ development strategies, aligning institutions like DFC and Japan’s Bank of International Cooperation to where they each can be most impactful, on what types of efforts, and with what types of financing instruments.
Mobilizing the private sector
The US has long recognized the potential of its private sector, but has struggled both to mobilize it and earn sufficient credit from their still substantial existing global investments. Government measures like co-investment or risk-sharing can attract private capital by improving returns. Lower-cost, asymmetric strategies could also yield significant results. One opportunity would be to encourage the formation of a standing consortia of US and partner country infrastructure companies to bid on development projects. This would be reinforced by tax incentives granting them a partial tax credit for costs related to project preparation or bidding. The US could also consider favorable tax treatment for the investments, operating profits, and capital gains from a targeted set of developing countries, perhaps further restricted by purpose. US embassies should also be given a mandate to lobby for any Western solution when there is a Chinese competitor, even if the US is not a direct beneficiary - an approach it should call on other allied nations to reciprocate.
Trading to development
An ideal complement to DFC’s reauthorization would be the modernization of trade preference programs for developing countries. These programs leverage the strength of the US market to support development and support the diversification of US supply chains. The African Growth and Opportunity Act, established in 2000 and subject to reauthorization this year, provides duty free access to 32 countries. It built on the Generalized System of Preferences (GSP), which provided duty free access to a broader set of developed countries, until its expiration in 2020. Long-term reauthorization of both programs would provide greater stability for prospective investors. It would be even better if reauthorization included support for countries to develop strategies to maximize their participation. With some $16 billion in eligible imports during GSP’s last year of eligibility, the program’s impact on the US trade balance is negligible compared to its strategic benefit.
Unlocking soft infrastructure abroad …
When one looks beyond capital and infrastructure, America has an even more compelling set of soft infrastructure. One opportunity would be to expand technical assistance programs that would send more US experts to more parts of government in more beneficiary countries.
China’s aggressive overseas media expansion, which further amplifies the impact of the country’s development efforts, has also gone largely unchecked. Project 2025, a conservative blueprint that will guide much of the administration’s efforts, called for embedding the US Agency for Global Media, which oversees Voice of America and its sister outlets, under the National Security or State Department, imperiling its journalistic independence. The better opportunity would be to forge closer partnerships with likeminded government broadcasters such as the BBC World Service, ensuring resources grow farther.
The US can also subsidize satellite internet in willing countries for the billions of people worldwide who remain without access to the transformative power of the web. The notice each time that someone logged on that access was being provided as a gift of the American people would have a personal resonance that no infrastructure project can match.
.. and at home
America also has underleveraged opportunities for influence within its own borders. Rather than imposing additional taxes on large university endowments as envisioned by some current tax proposals, the US should encourage these institutions to recruit and subsidize students from underrepresented countries. Relative to their share of world population, countries with students that are notably absent from America’s campuses include Indonesia (with a 2.9 percent gap, equivalent to 35 thousand students, between the country’s share of world population and share of US international students), Pakistan (2.1 percent), Brazil (1.2 percent), Nigeria (1.0 percent), and Bangladesh (0.7 percent)
Recasting immigration in a new light
Since the Belt and Road Initiative was launched in 2013, some $750 billion in remittances have been sent from the United States to other countries, approaching the nearly $1 trillion in capital China has committed on Belt and Road projects over the same time period. (Total remittances from China over the period were $150 billion.) On one hand, one could argue these remittances have had a more direct impact on recipient economies than the significant share of Chinese investment that is ultimately rerouted back to Chinese workers and firms. On the other hand, the power of remittances is limited by the fact that they are primarily used for consumption, as opposed to investment, and are concentrated in a select set of countries, including Mexico and India.
Even as the Trump administration has set in motion a renewed crackdown on illegal immigration, the president has notably underscored the value of high-skilled immigration, contradicting his most nativist supporters. America will one day rationalize its immigration system, just as it has belatedly committed hundreds of billions to the renewal of its infrastructure. When that day comes, it should not pass up the chance to prioritize temporary worker opportunities for nationals from strategically important nations, creating new flows of remittances, goodwill, and influence.
Prioritizing competition over obstruction
When China’s Asia Infrastructure Investment Bank launched almost a decade ago, the United States erred in refusing to join and lobbying partner nations to do the same, a call that many ignored. Joining would have given the U.S. a stronger position to hold Beijing accountable compared to its current stance as an outsider. As officials in both countries seek to understand what is and isn’t in scope for a possible new trade deal, perhaps this ought to be, offering the benefit of an additional form of counter influence as China embeds itself ever more deeply in institutions like the United Nations. And while the US should prioritize pro-competitive approaches to China’s development model, it should also preserve the right to take anti-competitive measures, such as blocking Chinese firms closely associated with the Belt and Road Initiative from accessing US capital markets, if they demonstrate a consistent pattern of harmful conduct in developing countries.
Winning the long game
For years, the US has struggled to present a credible, comprehensive alternative to the Belt and Road Initiative. But as long as the extraordinary opportunity for development remains around the world, America should not count itself out. It has a differentiated and no less valuable toolkit at its disposal that requires slightly more targeted coordination and incentives to fully realize. A long-term, people-centric emphasis will ensure the US self-sustaining influence well after the goodwill and value of China’s infrastructure-led approach inevitably depreciates in memory and physical and financial value.