Maximizing US foreign aid for strategic competition

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Report

June 29, 2023

Maximizing US foreign aid for strategic competition

By Patrick Quirk, Caitlin Dearing Scott

Introduction

The United States has reshaped how it uses military and economic tools to compete with China, Russia, and other adversaries. The United States is increasingly adept at deploying military assets, as well as a range of financial sanctions or trade deals, to weaken China or Russia’s position and advance its own. Yet, the United States has not calibrated all statecraft tools for this competition. This includes how and where it uses foreign aid.

For more than fifty years, foreign aid has been a core form of US engagement in the developing world. To advance its interests, the United States has provided loans, technical assistance, and direct budget support to developing nations to promote economic growth and more representative forms of governance.

A fully developed strategy for using foreign aid across all sectors—economic, education, security assistance, and democracy support—can provide critical reinforcement to the military and economic pillars of strategic competition. To be sure, the United States has reorganized parts of its bureaucracy and launched new initiatives to enhance how it uses foreign aid to compete with China. The US Department of State recently launched a new Office of China Coordination, informally known as China House, to coordinate China policy. The Biden administration announced a flagship Group of Seven Plus (G7+) initiative for the advancement of strategic, values-driven, and high-standard infrastructure and investment in low- and middle-income countries. Congress initiated foreign-aid funds dedicated to countering Chinese malign influence in foreign political systems.¹ New embassies in Vanuatu, the Solomon Islands, and Tonga, among other potential locations, are welcome developments that will provide the sustained presence necessary to engage governments and push back against Beijing’s influence, as well as help identify ways to use foreign aid to compete.

These changes are necessary, but far from sufficient to maximize the impact of foreign aid to compete with China and Russia. The power of foreign aid as a tool of US influence is not lost on its adversaries. The most prevalent example is China’s Belt and Road Initiative (BRI), through which the People’s Republic of China (PRC) has spent hundreds of billions of dollars for years to expand its influence in developing nations. Recently, China has increased BRI spending and shifted from its original focus on infrastructure megaprojects to the less capital-intensive, but still impactful, fields of governance (e.g., training elected officials in Beijing’s governance model); funding for academic departments to promote pro-Chinese narratives; green-energy projects; and funding for pro-China media outlets.² Under the BRI umbrella, China uses foreign aid in these and other sectors to promote policies and politicians favorable to PRC interests. The United States is, therefore, compelled to play a game of catchup.

Fully harnessing the potential of US foreign aid in this struggle requires fundamental reforms to the congressional processes involved in overseeing aid allocations and earmarks; reforms to bureaucratic agencies tasked with spending foreign aid; improvements to US modes for delivering this assistance; and a narrowing of scope to areas most critical for advancing US interests. Needed reforms include the following.

Realign spending to focus on allies and countries strategically important to US competition with China and Russia, including reconsidering assistance mechanisms based solely on income level, with an aim of investing in allies and partners that advance US interests.
Make delivering for allies and shoring up democracy core pillars guiding how the United States uses foreign aid to compete with China and Russia. Investments in strong democratic institutions—such as political parties, independent legislators, independent media, and civil society—will yield dividends in countering foreign authoritarian influence.
Invest to empower pro-democracy elements in backsliding or authoritarian countries. The United States must respond asymmetrically in countries with pervasive authoritarian capture, using foreign assistance in ways that empower individuals and institutions to expose and put pressure on the regime elements that perpetuate corruption and enable foreign influence.
Congress should pass legislation (the Non-Kinetic Competition Act) requiring the executive to submit multiyear plans outlining the US approach—harnessing all nonmilitary statecraft tools, including foreign aid—to competing with China in select priority countries.
Focus on geography and interests, rather than sectors, to ensure maximum flexibility, strategies rooted in country-specific needs, and longer-term planning.
Increase spending to expand partner-nation resilience to Beijing and Moscow coercion and cooptation. Strong democratic institutions increase a country’s ability to detect, prevent, and mitigate Chinese Communist Party (CCP) influence operations. Priorities should include support for independent media, parliamentary diplomacy, and educational and technical exchanges, all of which have proven effective at building democratic resilience to foreign authoritarian influence.
Empower the State Department’s Office of Foreign Assistance Resources to fulfill its mandate of aligning foreign aid with policy goals and maximizing impact. Enabling the Department of State to take the lead on foreign policy and control aid allocations will ensure that aid is appropriately leveraged to advance specific foreign policy objectives.
Lengthen the time horizon for US foreign-aid programs and objectives from a single year to ten. Democracy, rights, and governance programming—as well as initiatives in other sectors germane to competition—requires longer-term investment to develop strong and resilient institutions, political parties, and processes. US agencies and implementing partners need longer project times to maximize impact.
Limit branding waivers. The United States benefits from populations and governments knowing who provides aid, and its marketing needs to reflect as much.
Focus on advancing interests, rather than “localization” targets. The US Agency for International Development (USAID) and State Department should pursue partnership approaches best positioned to achieve US interests in the target country. In most, if not all, cases, this will involve working through international nongovernmental organizations (NGOs) that collaborate with and, as needed, build the capacity of local partners.

With the aim of encouraging the United States to more strategically use foreign assistance to advance its policy objectives, this paper outlines why the threat posed by China and Russia requires more than a kinetic solution, and why and how foreign aid is essential to winning this competition; the current US approach to foreign assistance—where it spends, on what, and via which bureaucratic mechanisms—and its strengths and shortcomings; historical lessons from using US foreign aid for strategic competition, principally during the Cold War, that are applicable today; and recommendations for reforming the US foreign-aid infrastructure, regulations, and approach to better position the United States to compete.

I. The authoritarian threat has no purely military solution

China and Russia are often portrayed as purely military threats that warrant entirely kinetic solutions. To be sure, US military deterrence through a strong Army, Navy, and Air Force—with nuclear capabilities as a foundation—will remain essential to strategic competition. Kinetic options are necessary, but not sufficient. Competition with China and Russia is playing out not only in the sea lanes of the Indo-Pacific or Ukraine’s battlefields, but in the halls of parliaments in developing nations, in efforts to influence the post-conflict political systems of war-torn countries, and at the United Nations (UN), where both China and Russia endeavor to reshape the liberal world order.

China’s primary threat to the United States is undoubtedly a military one. It is amassing weapons sufficient to invade Taiwan, and has expanded its blue-water navy with an eye toward rivaling, if not supplanting, US capabilities. Yet, the PRC is also using political and economic tools to expand its influence in developing states at the expense of US objectives.

The CCP is increasingly using economic leverage and elite capture to exert political influence, deploying information operations, party-to-party ties, and, in some cases, export of its authoritarian governance model to create favorable conditions in other countries that enable the PRC to advance its local and global interests. This includes extracting natural resources critical to its domestic production and economic growth, expanding military basing essential to Chinese military deterrence and expanded control, and coopting politicians who serve these ends and can be counted on to vote with China at the UN on issues ranging from criticism of human-rights violations in Xinjiang to the future of the International Telecommunications Union and global internet governance. Together, these tactics are corroding democratic governance and popularizing authoritarian governance in countries the world over.

The BRI has been the crown jewel in the CCP’s global influence campaign. Nearly one hundred and fifty countries from every region of the world have signed on to the BRI, presenting a significant opportunity for the PRC to exert economic and political influence on a regional and global scale.³ According to research conducted by the International Republican Institute looking at PRC influence across country contexts, “growing trade, financial, and business ties are the foundation of the PRC’s efforts to build influence in other countries’ politics.”⁴ The CCP strategically deploys economic dependence, leverage, and coercion, in addition to elite capture, to develop pro-PRC constituencies in partner countries and advance pro-PRC policies. Thus, the BRI fits into the CCP’s broader efforts to create a world safe for the party and its interests, which Chinese leader Xi Jinping proposes achieving via three initiatives that collectively articulate the CCP’s vision for the globe, titled the Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative.⁵

The Global Development Initiative (GDI) seeks to expand the BRI to advance “people-centered” development, China’s catchphrase for its model of development that prioritizes economic advancement at the expense of human rights. The GDI—and PRC promotion of it—is explicit in its rejection of “Western” definitions of development, which incorporate human rights as a core tenet.⁶ China has been rallying countries to join the GDI, with vague promises of PRC support to help them achieve their Sustainable Development Goals for 2030, with a focus on poverty and hunger alleviation and increased access to clean energy. The PRC has established a group of “Friends of the Global Development Initiative” at the UN, which counts some sixty members.⁷ The Global Security Initiative (GSI) is the CCP’s vision for building a new global “security architecture” rooted in the CCP’s definition—and model—of security and stability.⁸ With aims to increase CCP influence at the UN through increased funding and diplomatic engagement, the expansion of PRC training programs to military and police, and an expanded role serving as an arbiter in international conflicts, the GSI signals China’s intent to return to its self-avowed rightful place at “the center for the world stage.”⁹ Without naming the United States and Europe, the CCP through GSI makes clear that it seeks to provide an alternative model of alliances or “circle of friends” to counter US interests, with a particular focus on the developing world in Africa, Southeast Asia, the Middle East, Latin America, and the Pacific islands.¹⁰

The Global Civilization Initiative (GCI) is the PRC’s new framework for promoting its governance model globally, building on the foundational work of the International Liaison Department supporting political parties around the world. Whereas such party-to-party exchanges once sought to build the legitimacy of the CCP, they are now focused on advertising the value of the PRC’s system of governance more generally. The GCI formalizes this recent trend, emphasizing the need for respect for a plurality of governance models. Speaking at the World Political Parties’ Conference, organized by the CCP in March 2023, General Secretary Xi Jinping extolled the PRC’s model of “a better social system,” noting that China’s experience has broken the myth that “modernization=Westernization.”¹¹ Implicit in the GCI, with its calls for understanding “different civilizations’ understanding of values” and models, is an attempt to popularize the CCP’s model of governance and help it realize its vision of a revised global order with a CCP-led China as the central node of globalization and global governance in the decades to come.

Collectively, these three initiatives are part of China’s overall strategy to promote authoritarian solutions to the mounting challenges facing developing democracies. They have the potential to undermine the principles of liberal democracy that buttress the extant rules-based world order. For many developing countries, PRC investment and trade are an economic necessity. They are, however, never free of conditions, despite PRC claims to the contrary. Whether the terms mandate that PRC-financed infrastructure be awarded to PRC-based companies, eschew existing environmental standards, or subvert transparency and accountability disclosure terms on the contractual arrangements, PRC entities’ business and negotiating practices often have adverse effects on the recipient countries’ finances and political systems.¹²

From a security standpoint, China’s promotion of the concept of “indivisible security,” used to justify Russia’s invasion of Ukraine, and its “aims to reshape norms of international security to be favorable to China and other authoritarian regimes while delegitimizing traditional military alliances,” as the US-China Economic and Security Review Commission has noted, are deeply worrying.¹³ Moreover, its proclivity to export repression beyond its borders poses a serious threat to developed and developing nations alike.

China has utilized “public security” as an entry point for establishing overseas police stations in fifty-three countries around the world, providing an entry point for PRC law enforcement to engage in transnational repression and crack down on dissent and political expression among the Chinese diaspora.¹⁴ In countries with large diaspora populations, the CCP has also relied upon triads, or crime syndicates, to intimidate its critics and further its objectives at the local level. Moreover, politically, China’s promotion of its authoritarian governance model undermines good governance globally, fueling democratic backsliding and legitimizing the rise of authoritarian actors from El Salvador to Belarus.

All of this has the potential to undermine US interests on everything from internet governance to human rights, while undermining US global leadership. These tactics have dire consequences for the United States, yet the United States cannot effectively address them with purely military or trade/sanctions solutions. Military responses, whether ship deployments or arms transfers, do not help strengthen the institutions and civil society needed for countries to be resilient to PRC influence operations, or to build an alliance of democracies to counter a growing autocratic threat.

Like China, Russia poses a threat to US interests that cannot be countered with armaments or economic tools alone. Russia is squarely focused on winning its illegal war with Ukraine. Even so, we can expect Vladimir Putin’s regime will continue using a range of non-kinetic means to advance its interests in Europe, Latin America, Africa, and Asia. The Kremlin’s principal goal is to foster instability and undermine alliances that counter its influence regionally and globally. It deploys a mix of political, economic, and military tactics to divide and rule.¹⁵

In the political arena, the Kremlin directly interferes in other countries’ political and electoral processes. Russia tries to influence the political playing field to be more amenable to its interests, and to inject the Kremlin’s point of view into the political discourse. The Kremlin and its affiliated entities provide financial and other incentives to political parties and politicians willing to represent and advance favorable policies in national parliaments or international institutions. Such support can include legal and illicit campaign contributions, often made by organizations set up by Russia’s agents of influence, individuals linked to Russia and Russian businesses, or Russian organizations directly. According to a recent report by the US State Department, Russia has covertly given at least $300 million to officials and politicians in more than two dozen countries since 2014, with plans to transfer more.¹⁶

Russia also targets electoral processes. Russian hackers have been accused of interfering in many elections and electoral campaigns around the world. In the 2018 presidential election in Mexico, they were reportedly involved in the spread of false information aimed at discrediting candidates to stir up divisions and polarization among voters.¹⁷ Russia similarly deploys cyberattacks, internet trolling, social media campaigns, and intrusions into state voter-registration systems to undermine political and electoral processes and create confusion as people head to the polls.¹⁸

Economically, the Kremlin employs strategic corruption to coopt elites and create pro-Kremlin proxies in media, politics, and business to push its agenda. This strategy aims to influence debates, gain support, and shape legislation in the Kremlin’s favor. This tactic is particularly effective in countries with favorable views of Russia. It helps galvanize public support and weakens alliances that conflict with the Kremlin’s interests. The Organized Crime and Corruption Reporting Project (OCCRP), a group of investigative journalists, recently revealed an expansive Kremlin operation to bribe politicians and businesspeople in Europe.¹⁹ The International Agency for Current Policy, an informal group connected to Moscow, is behind the bribes, arranged payments, and all-expenses-paid trips to luxury resorts for numerous European politicians and investors to encourage pro-Russian political and economic actions.

Militarily, the Kremlin is deploying proxy forces like the Wagner Group to support authoritarian governments or provoke low-scale conflict across Africa, including in Mali and the Central African Republic.²⁰ Wagner Group security deployments across the continent have been at the forefront of Russian efforts to influence African politics, and have been accompanied by disinformation campaigns to advance Russia’s political and security influence.²¹ The Wagner Group has also led Kremlin efforts to develop a pro-Russia infrastructure across Africa. This infrastructure includes the Internet Research Agency troll farm to conduct disinformation campaigns, captured antidemocratic political elites, coopted companies that exploit Africa’s natural resources, and front companies posing as nongovernmental organizations.

Russia’s influence efforts around the world are supported by wide-scale propaganda and disinformation campaigns to delegitimize independent, expert journalism—and the very concept of truth—in the eyes of consumers, exploit fissures in democratic societies and exacerbate polarization in conflicted ones, undermine support for democracy and the West, and advance pro-Kremlin narratives and policies. One approach Moscow deploys are Russian-funded media outlets like RT and Sputnik. RT, formerly Russia Today, is part of a state-sponsored propaganda corporation that masquerades as a legitimate, Western-looking news and opinion-making outlet that produces content in seven languages.²² With almost $400 million coming from Russian state subsidies in 2022 alone, the company has hired Western journalists to mislead its viewers, and to make its false content seem credible to legitimate media outlets around the world. Another tactic Russia uses is fake media outlets and social media accounts to dilute legitimate media reporting and inject messaging that serves Russia’s strategic objectives. Social media have been a particularly powerful tool for Russia, whose agents have been creating tailored content to influence the beliefs of groups of voters and sway them away from anti-Russia political forces.

The contours of this challenge—from Beijing and Moscow—make clear that military and economic tools are not enough for the United States to compete and win. Kinetic efforts cannot bolster partner countries against the malign influence of the CCP and Kremlin and the associated cooptation of elites. Military tools, either security assistance or indirect effects of deterrence, cannot shape the politics and development trajectories of partner countries so that they take forms more favorable to the prosperity of their own people and US interests.

Economic-statecraft tools are more amenable to these ends—and complementary to foreign aid—but still not sufficient. Trade deals can increase US economic competitiveness vis-à-vis China by bolstering the US industrial base through opening markets to US citizens and businesses. The United States can use trade deals as an incentive for potential allies to align with US interests over those of the PRC or Kremlin and to help countries reduce their economic dependence on China and Russia. The United States can use economic sanctions to punish countries or individuals for a range of behaviors—from repressing their citizens, as in Belarus, to invading Ukraine, as with Russia—with the aim of stopping said targets from continuing these actions. Moreover, the United States can use economic measures to build a collective economic defense against economic coercion, and to deter PRC and Kremlin economic aggression.

Foreign aid is a necessary complement to kinetic and economic tools. It cannot single-handedly address all challenges listed above, but can help lead to changes—like making a country’s governance systems more resilient to foreign interference—that benefit the United States at the expense of its rivals.

II. US foreign aid: Effective tool, dated toolbox

The United States has utilized foreign assistance to advance its geopolitical interests since the end of World War II, and introduced the Marshall Plan to secure Europe’s (and Japan’s) social and economic foundations in the face of Soviet expansionism and restive communist factions.²³ The United States continued to use foreign aid as part of its strategy of containment over the next four decades, providing valuable lessons for advancing US interests in a new age of competition.

Foreign aid (interchangeably referred to as “foreign assistance”) consists of money, technical assistance, or commodities the United States provides to another country to advance a common objective. US foreign assistance can be organized into three overarching categories based on intent of spending: economic and development assistance that addresses political, economic, and development needs; humanitarian assistance that supports disaster relief and emergency operations to alleviate suffering and save lives; and security assistance, which strengthens the capacity of the military and law enforcement in other countries.²⁴

Across these three categories, foreign-aid-funded initiatives can include training rural farmers in more sustainable harvesting techniques, helping construct roadways linking peripheral towns to urban centers, or deploying specialists to advise government ministries on economic or political reform options.

The throughline connecting the three foreign-aid types—and the variation therein—is that US taxpayer dollars spent to fund these initiatives help lead to changes in the target country that benefit US interests. For instance, spending to increase the capacity and independence of government institutions can enhance transparency and provide more favorable investment conditions for US companies.

Yet, the United States spends less than 1 percent of its discretionary budget on foreign assistance, which for fiscal year (FY) 2022 amounted to$52.76 billion.²⁵ Comparatively speaking, this is a small portion of the federal budget. For the sake of contrast, it is 7 percent of the military’s FY22 $777.7-billion budget, and is nearly the exact amount the Department of Defense paid for fewer than one hundred new aircraft in FY22.²⁶

Illustrating the overall downward trend in foreign-aid spending, the United States spends roughly 50 percent less on foreign aid today, as a portion of gross domestic product (GDP), than it did during Ronald Reagan’s presidency. The similarities in the challenges the United States faced in the 1980s and today—and the disparity in resources it is marshalling to address those threats—is stark.

The United States allocates foreign aid through several departments and agencies, with the main entities being USAID and the Department of State. President John F. Kennedy established USAID in 1961 to lead the implementation of US foreign aid. Through the 1970s, USAID provided emergency food assistance that helped avert famines and helped newly independent countries establish basic governing structures. In the 1980s, USAID assistance guided economic reforms across Latin America and other regions around the world, helping stabilize economies in the face of currency and debt crises. After the Soviet Union’s fall, USAID helped new countries transition from autocracies to nascent democracies. From 2000 onward, USAID has played a central role in combatting HIV/AIDS, addressing violent extremism in fragile states, and solidifying democratic gains from the immediate post-Cold War era. In 2004, the United States expanded the agencies responsible for allocating foreign aid by establishing the Millennium Challenge Corporation (MCC) and, in 2019, the International Development Finance Corporation (DFC).²⁷ These changes that foreign aid helped enable or cause have, directly or indirectly, benefited US security and economic prosperity.

What the United States has gained in scope and scale through this range of foreign-aid entities, it has lost in not having them unified by a common directive and mission for spending. The George W. Bush administration worked to address this drift by disbanding USAID policy offices, and transferred those associated oversight and policy responsibilities to a new Office of Foreign Assistance Resources at the Department of State. This change aimed to further align foreign-aid spending with foreign policymaking, which is the State Department’s purview (USAID, per a 1988 law, reports to the secretary of state). Despite this change, the United States continues to struggle with developing comprehensive strategies for issues and countries—and harnessing all elements of US foreign assistance (in tandem with other statecraft tools, like diplomacy and economic engagement) toward a common end. Some feel USAID operates too independently, and its spending is insufficiently aligned with US foreign policy objectives.

Why foreign aid is critical to strategic competition

A solid base of rigorous research shows that foreign aid is effective across a range of sectors in contributing to changes in recipient countries that favor the United States and advantage it in its competition with China, Russia, and other rivals.

Foreign aid can lead to three primary types of impact that are beneficial to strategic competition: economic development that opens markets to US businesses, which increases US economic competitiveness with China and Russia; stronger governance and political institutions, which can serve as a robust check on Russian and Chinese attempts to undermine or coopt allies or potential partners; and more favorable views of the United States by a government and/or its people, which the United States can then leverage for cooperation on mutually beneficial interests or against China and Russia.

Foreign aid supports US economic competitiveness by helping develop new economies for US businesses and trade. It does so by promoting a country’s overall development, as well as sound, transparent regulation.²⁸ Foreign assistance increases economic potential within a state, especially when developing basic industry, improving basic infrastructure, or rebuilding an area after conflict. Today, for example, eleven of the United States’ top fifteen trade partners are previous recipients of foreign aid. Access to overseas markets matters for people at home; roughly one in five US jobs is linked to international trade, and one in three US manufacturing jobs is linked to exporting US products overseas. When considering investments overseas, US businesses need predictable regulations managed by independent institutions, which, collectively, minimize risk of loss of capital. By fostering foreign markets for US goods and businesses, foreign aid can help bolster the United States’ industrial base.

Foreign aid also helps strengthen governance and democracy in countries around the world. A study of US foreign assistance focused on “democracy promotion” programs from 1990 to 2003 found that democracy assistance had “clear and consistent impacts” on overall democratization—as well as civil society, judicial and electoral processes, and media independence.²⁹ Despite a global democratic recession from 2012 to 2022, eight countries that were autocracies actually bounced back and are now democracies in 2023—with international democracy support and protection being an important factor in securing these gains.³⁰ The benefits of these changes, enabled by foreign aid, are clear. The world is safer and more secure with more—not fewer—democracies. Democracies do not launch wars against other democracies, are more reliable allies to the United States, and are far less prone to intrastate civil conflict.³¹ By strengthening independent institutions and civil-society oversight, foreign aid can help make countries more resilient to interference from foreign rivals like China and Russia. Robust institutions and vibrant civil society make it difficult for China and Russia to exert influence and coopt elites.

Finally, foreign aid can help improve citizens’ and governments’ views of the United States, often at the expense of its principal rivals. The long-term aspect is important here. Chinese and Russian foreign-assistance programs tend to favor physical projects that advance their economic interests and solidify partnerships with authoritarian actors.³² Populations, genuinely appreciative and benefiting from such investments, look favorably upon these efforts in the short term. Over time, there is growing evidence that these projects eventually begin to erode local support for Beijing and Moscow.³³ In the case of China, this is partially due to shoddy construction work, a feeling of Chinese neocolonialism and loss of sovereignty, and discomfort with authoritarian moves by parties in power. While there is much reporting on China’s BRI and Russia’s recent use of Wagner Group mercenaries in Africa, both countries’ programs lack transparency—increasingly alienating potential local partners as long-term consequences become more apparent.³⁴

By contrast, US foreign-assistance spending is transparent, involves clear conditions guiding where and how funds are to be used, and favors working with local partners to identify real needs and inform project design and implementation.³⁵ Well-implemented, effective, and large-scale initiatives focused on addressing pressing needs of populations—like the President’s Emergency Plan for AIDS Relief (PEPFAR)—solve problems for local populations and generate positive perceptions of the aid provider, the United States. Several studies find that US investments in PEPFAR foreign assistance (as one example) are strongly associated with improved perceptions of the United States across the globe.³⁶ A potent mix of project transparency, exposure to US government institutional practices and customs, and an earnest desire to help recipient countries prosper underpins US foreign aid’s impact and success.³⁷

III. Looking back to chart a path forward: Lessons from the Cold War

Today’s threat landscape is not analogous to the Cold War for several reasons: China and the United States are far more intertwined economically than the United States and Soviet Union; technological advances have minimized geographical advantages; and states and citizens are more connected, with a magnitude of information access that was unthinkable in the immediate post-World War II era.

Despite these differences, the period in which the United States was grappling with a seemingly mighty Soviet Union and today’s competition with China share some similarities. Today, like then, the United States faces an array of threats across military, social, economic, and political domains from a formidable power that kinetic tools alone cannot address; as a result, the United States is looking to harness all statecraft tools to its advantage. Three key lessons from how the United States used foreign aid during the Cold War can help inform how it uses this non-kinetic tool for strategic competition today.

To maximize foreign aid’s impact, strategic patience is essential. Foreign aid can produce meaningful outcomes, but changes can take years to occur.³⁸ It took a decade for the Marshall Plan and associated US foreign assistance to transform Western European nations into the staunch democratic-minded, market-oriented partners that they are today. While US foreign aid that began in 1948 helped prevent socialist uprisings across Europe, NATO integration and rearmament took the 1950s to accomplish.³⁹ The European Economic Community only truly began to develop in the 1960s.⁴⁰ And the dismantling of European colonial empires and the move toward the US view of the liberal order took until the 1970s to be fully realized.⁴¹

Beyond Europe, US foreign assistance to African and Latin American governments highlights how approaching regions with a longer-term perspective and approach provides opportunities to augment engagement when conditions become more favorable.⁴² Throughout the 1960s and 1970s, US work in both regions haphazardly shifted between supporting anticommunist militarism, encouraging economic liberalization and development, and improving living conditions.⁴³ Moreover, post-colonial struggles in Africa and regional interference from the Cubans and Soviets in Latin America limited the overall effectiveness of US foreign-assistance programs until the 1980s.⁴⁴ Previous US engagement then allowed it to become a preferred partner as the Soviet Union began to withdraw from the “third world” and the global financial order introduced new requirements for integration and development.⁴⁵

Just as foreign assistance takes time to generate outcomes, assistance strategies should have flexibility to adapt to changes in the country or region over the lifetime of a given initiative. Identifying an end state, and methodically working toward it over the course of years or decades, allows second- and third-order effects of investments to occur.

Second, policymakers need to be realistic about what foreign aid can achieve—and avoid overpromising and under-delivering. More often than not, success has been achieved when US policymakers used foreign assistance to secure practical and realistic outcomes. While often criticized for partnering with autocrats over the course of the Cold War, the United States’ incremental investments slowly eroded the Soviet Union’s theory of victory and allowed the United States to encourage democratic progress over time.⁴⁶ US foreign assistance supported strategic aims that ultimately led to a more peaceful, prosperous, and representative world.

A final lesson is that foreign assistance works best when it is part of a broader whole-of-government strategy.⁴⁷ When the United States synchronizes foreign-aid interventions, these efforts tend to build on each other to promote long-term cultural change and alignment with US interests and policy.⁴⁸ Some clear examples of whole-of-government success are Western Europe, Colombia, South Korea, and Chile.⁴⁹ Each of these examples shares a US assistance approach and series of programs that combined security guarantees with cooperation and reform programs; economic-development packages that paired investment monies with revitalization of key industries; social initiatives intended to soften cultural cleavages while improving social determinants of health; and incentives for local governments to improve their capacity, resiliency, and responsiveness. When foreign-assistance efforts remained siloed between agencies, efforts fell short and minimized impact of taxpayer dollars.

IV. Recommendations: Maximizing US foreign aid to compete

The United States has the infrastructure and expertise to re-elevate foreign aid as a tool of statecraft and use it to help compete with China, Russia, and other adversaries. Doing so will require making changes to where the United States spends foreign assistance and on what, and reforming structures within the US government that dictate how said funds are allocated. These changes are based on lessons from the past, as well as a sober assessment of today’s threat landscape and the need to position the United States for today’s challenges.

1. Where the United States allocates foreign aid and on what

The United States should realign spending to focus on allies and countries strategically important to competition with China and Russia. Foreign aid can help lead to changes in countries that advantage the United States in that competition (e.g., by making a country’s political system more resilient to Chinese or Russian influence), as well as address other pressing challenges (e.g., by addressing causes of migration in Central America to curb flows of people into the United States). Foreign aid can also be used to help US allies or countries of strategic importance in ways that maintain or cement extant alignment of interests (e.g., via infrastructure development that benefits the government in power) or help move a country that is on the fence between cooperating with China and the United States (e.g., Pacific islands).

The current approach to, and regulations governing, allocating foreign aid is not set up to enable the United States to use funds in ways that directly and efficiently advance US interests. It forces the United States to center spending in many aid sectors on predominantly low-income countries (where the perceived greatest development needs are) and disincentivizes spending on middle-income nations (with some plans in place to phase out spending in middle-income states), disregarding how important these nations, despite their income level, might be to the United States.

The Trump administration explored realigning how the United States uses foreign assistance of all stripes—from economic aid to health assistance—to make competing with China the primary objective. This realignment did not gain traction. However, the review elements that called for revisiting stipulations to spend based on a country’s income level—and instead center decisions around a country’s importance to the United States—are welcome and worth revisiting.

The United States should make delivering for allies and shoring up democracy core pillars guiding how it uses foreign aid to compete with China and Russia. The United States has rightfully increased funding for infrastructure projects in developing nations—along and through multilateral forums—to offer an alternative to China’s BRI. These projects, from highways to hospitals, help the United States compete with China because they buy goodwill with recipient governments and—given the transparent way in which they are managed—provide important investment to support countries’ development needs. But they only address one part of the China challenge, and do not address the root causes enabling Chinese interference and influence—weak governance and political institutions.

Strong democratic institutions are the most reliable form of defense against Russian, Chinese, and other external efforts to shape a country’s domestic politics to the benefit of the external actor. Political parties channel citizens’ views into policy and law. Independent legislatures and capable executives craft and enforce legislation that makes markets favorable to foreign (and US) investment, and inhibit the type of opaque deals favored by the PRC. Independent media play a crucial role in identifying and exposing harmful authoritarian influence, while civil-society organizations (CSOs) work to push governments to take corrective action. Across borders, a diverse group of activists, media figures, religious leaders, researchers, and policymakers is collaborating to confront the challenge of foreign authoritarian influence, forming a strong and growing network of likeminded individuals committed to building democratic resilience worldwide. This network is using innovative methods to uncover and bring attention to the harmful influence of authoritarian actors, such as the PRC and Kremlin. They are devising advocacy and policy solutions tailored to the individual needs of local communities, with the goal of promoting lasting change and ensuring accountability from domestic and foreign authoritarian actors. They need US support.

Invest to empower pro-democracy elements in backsliding or authoritarian countries. In democratically backsliding or authoritarian countries, the scope and scale of elite capture by the PRC or the Kremlin—and conditions on US foreign assistance over human-rights concerns and corruption—limit the potential for political change to build democratic resilience to foreign authoritarian influence. In such contexts, it is extremely challenging to compete symmetrically with the PRC or the Kremlin, which do not impose conditions related to human rights or democracy, and routinely end up worsening both. The United States must respond asymmetrically, using foreign assistance in ways that empower individuals and institutions to expose and put pressure on the regime elements that perpetuate corruption and enable foreign influence. Ongoing investments in media, civil society, and small “d” democratic political parties and opposition movements can sustain important pro-democracy elements to effectively push back against authoritarian influence, in closed and closing countries.

2. Congressional action

Given its constitutional role of oversight and resource appropriation, Congress has an important role to play in ensuring the United States maximizes use and impact of foreign aid in its competition with China and Russia.

Congress should pass legislation (the Non-Kinetic Competition Act) requiring the executive to submit multiyear plans outlining the US approach—harnessing all nonmilitary statecraft tools, including foreign aid—to compete with China in select priority countries. Absent congressional requirements or oversight, it is unclear if the executive branch will be able to swiftly make the needed changes outlined above to where and how the United States spends aid, including ensuring whether it is part of a broader strategy for each country. To accelerate these efforts, Congress could pass legislation requiring the executive to deliver plans for select priority countries, outlining how it intends to use all aspects of US power and resources—including foreign aid, linked to diplomacy—to compete with China. The strategies should include a clearly defined goal, as well as a theory of the case. The legislation could be modeled on the Global Fragility Act (GFA), which requires the executive to deliver a strategy for preventing violent conflict and promoting stability globally, and ten-year plans for achieving these aims in select priority countries. Unlike the GFA, however, the legislation proposed here need not require the executive to publicly release plans, given the sensitive nature of the content.

Focus on geography and interests, rather than sectors. US foreign aid is largely organized around sectors (e.g., health, education) and driven by congressional earmarks. This makes it exceedingly difficult for the United States to craft geography-specific strategies (e.g., for sub-Saharan Africa) with a single source of foreign aid as an available resource. Ideally, the United States would craft a competition strategy for a given region that clearly identifies an end state, theory of the case, and associated inputs required to realize it (kinetic and non-kinetic, including foreign aid). Instead, the current system predetermines (via earmarks) how the United States spends a significant portion of foreign aid (with some exceptions), forcing planners to use aid in suboptimal ways that seldom advance country-specific strategies.

Congress, considering its increased attention to position the United States to prevail against China, should review extant earmarks, do away with as many as feasible, help the executive conduct longer-term planning, and provide greater flexibility in using foreign aid to compete. The legislation cited below could help set parameters and ensure funds are spent on the highest priorities.

Increase spending to expand partner-nation resilience to Beijing and Moscow coercion and cooptation. Strong democratic institutions increase a country’s ability to detect, prevent, and mitigate CCP influence operations, but must be coupled with other work focused squarely on detecting, preventing, and countering CCP and Kremlin interference—whether attempts by the PRC to train political parties in Kenya on the China “model” or direct Kremlin funding to political parties to influence electoral outcomes and ensure pro-Kremlin voices are voted into office. Foreign assistance in this category can fund a range of programming, from technical assistance to countries negotiating BRI deals to support for independent media in countries vulnerable to foreign influence. Priorities should include the following types of democracy, rights, and governance programming, which have proven effective in building democratic resilience to foreign authoritarian influence.

Supporting independent media: Supporting independent journalism can be a powerful tool in countering the influence of the PRC and Kremlin in the Global South. It is a wise investment of limited US resources to empower well-trained journalists in vulnerable countries, who can provide free and unbiased reporting to expose the impact of foreign authoritarian influence. Every dollar spent in this direction can make a significant difference.
Legislative dialogues: In legislatures throughout the world, a growing number of elected officials are committed to democratic resilience. From engaging with partners like Taiwan and Ukraine to exposing concerns around the domestic impacts of deepened political and economic engagement with China and Russia, these officials have been successful in advocating for measures to counteract foreign influence and building global democratic unity to confront it. Facilitating and supporting such dialogues, by both the US Congress and parliaments globally, is a critical and effective means to counter PRC and Kremlin influence.
People-to-people exchanges: China is making a significant investment in people-to-people exchanges, sponsoring fellowships, scholarships, and exchanges to showcase the China model across the Global South. This soft-power initiative is an area in which the United States has a strategic advantage; it just needs to leverage it. The exchange programs sponsored by the Department of State’s Bureau of Educational and Cultural Affairs are an effective mechanism for engaging youth, students, educators, artists, athletes, and rising leaders to promote US interests—and democracy. More than 99 percent of participants in the bureau’s Sports Visitors exchange program come away expressing positive views of the United States, while its exchange programs have brought almost seven hundred officials who would go on to run their countries’ governments to the United States. However, only forty thousand international participants engage in such programming annually, given the bureau’s $777.5-million annual budget for exchanges. By comparison, in 2018, the PRC provided scholarships to sixty-three thousand students to study in China, a figure that doesn’t include party-to-party exchanges run by the International Liaison Department or journalist and parliamentary exchanges. Additional investment in this area would be a cost-effective win-win.

The United States spends a paltry amount combatting Russian and Chinese malign influence around the world, despite this being the foremost challenge of the time. The United States spends less than $325 million a year countering Chinese influence and $300 million countering Russian influence via foreign aid. In fact, the $625 million the United State spends annually on this threat from China and Russia is less than the Defense Department spends on printing each year.⁵⁰

US policymakers argue that prevailing against China is a national imperative, but have only appropriately resourced its kinetic toolkit. Foreign-aid spending focused on this aim needs to increase fourfold, to $1 billion annually. It should center on countries already exposed to CCP and Kremlin interference, at the cusp of such interventions, or likely to experience them moving forward.

3. Intra-US government structural changes

Several changes to intra-US government processes and structure would help better align foreign-aid spending with core national security interests and increase its impact in the competition with China and Russia.

Empower the State Department’s Office of Foreign Assistance Resources to fulfill its mandate of aligning foreign aid with policy goals and maximizing impact. US foreign-aid spending should directly align with, and advance, US interests in priority states, competing with China and Russia chief among them. This means enabling the Department of State to take the lead on foreign policy and control aid allocations in a way that concretely advances specific foreign policy objectives, rather than a development goal that might be tangentially related to US interests. The secretary of state should empower the Office of Foreign Assistance Resources to truly lead on foreign-aid coordination and alignment, deputizing its director to ensure aid spending aligns with policy goals. The USAID administrator should continue reporting to the secretary. The United States needs to maximize the impact of foreign aid for immediate political wins and incorporate foreign aid into longer-term planning.

Lengthen the time horizon for US foreign-aid programs and objectives from a single year to ten. The United States used foreign aid to significant effect during the Cold War. Flexibility in what and how to spend, as well as the time horizon on which success was measured (noting the struggle with the Soviet Union was the central objective) were extremely important. In the last 15–20 years, and in line with shorter-term goals (e.g., health), the time horizon for gauging success has shortened to 1–2 years. This is counterproductive. Democracy, rights, and governance programming—as well as initiatives in other sectors germane to competition—requires longer-term investment to develop strong and resilient institutions, political parties, and processes. US agencies and implementing partners need longer project times to maximize impact.

Limit branding waivers. Projects or initiatives funded by US foreign aid typically are branded as “from the American people,” and include the funding agency’s logo (e.g., that of USAID) to enable attribution for the work to the United States. Yet, the United States often allows organizations implementing foreign-aid projects to forego this branding requirement—thereby granting a waiver—on security or other grounds. For example, an NGO offering training to local farmers in an area contested by militias known to have anti-American views might request a waiver citing potential risk to personnel from said armed groups. Similar exceptions are granted for construction or other projects in areas perceived to be contested or at risk. Meanwhile, there are hospitals, schools, trainings, and so on in the same areas with “from China” branding readily visible. The United States benefits from populations and governments knowing who provides aid, and its marketing needs to reflect as much. The United States should only issue waivers when said branding could pose harm to implementers or beneficiaries, or when it is counterproductive to achieving results.

Focus on advancing interests, rather than “localization” targets. Under current Administrator Samantha Power’s leadership, USAID has articulated a commitment to the localization of US foreign assistance. This includes, but is not limited to, channeling a greater portion of US foreign assistance to local partners and taking additional steps to ensure US-funded projects build sustainable capacity of these local organizations. The United States has considered requiring international nongovernmental organizations that receive the “primary” grant from USAID to allocate a set percentage—up to 20 percent—to go directly to local partners. The rationale for this change, which the Barack Obama administration shared, is that US foreign assistance should help build local capacity to address needs. The intent is noble, but this arguably detracts from US foreign assistance achieving its actual and main intent—advancing US interests.

Rather than set aside an arbitrary amount of foreign aid for channeling to local NGOs, USAID and the State Department should pursue partnership approaches best positioned to achieve US interests in the target country. In most, if not all, cases, this will involve working through international NGOs that collaborate with—and, as needed, build the capacity of—local partners. Foreign aid should focus on building capacity and localizing aid, insofar as doing so advances US interests.

Conclusion

The United States’ overall approach to statecraft—how it forms strategy and uses tools to execute that strategy—has not caught up to the state of the world today. The current approach too often places bureaucratic prerogatives above policy priorities. The United States needs to be on high alert, shaping all aspects of government work toward its competition with China.

Patrick Quirk, PhD, is vice president for strategy, innovation, and impact at the International Republican Institute (IRI) and nonresident senior fellow in the Atlantic Council’s Scowcroft Center for Strategy and Security.

Caitlin Dearing Scott is the director for countering foreign authoritarian influence at the International Republican Institute.

The authors would like to thank Owen Myers for his research assistance.

The Scowcroft Center for Strategy and Security works to develop sustainable, nonpartisan strategies to address the most important security challenges facing the United States and the world.

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Image: U.S. and Chinese flags are seen before Defense Secretary James Mattis welcomes Chinese Minister of National Defense Gen. Wei Fenghe to the Pentagon in Arlington, Virginia, U.S., November 9, 2018. REUTERS/Yuri Gripas

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Maximizing US foreign aid for strategic competition

Introduction

I. The authoritarian threat has no purely military solution

II. US foreign aid: Effective tool, dated toolbox

Why foreign aid is critical to strategic competition

III. Looking back to chart a path forward: Lessons from the Cold War

IV. Recommendations: Maximizing US foreign aid to compete

1. Where the United States allocates foreign aid and on what

2. Congressional action

3. Intra-US government structural changes

Conclusion