There are many ethical and interests based arguments for why the United States should provide foreign aid to Latin America. Many argue that promoting economic prosperity and stability in the hemisphere benefits U.S. national interests, while others make the moral argument that reducing poverty and misery in the Americas is the right thing to do. However, President Donald Trump’s fiscal year 2018 budget proposal drastically cuts U.S. foreign aid. This is an ill-advised and short-sighted move that could open a door for other nations to increase their influence in regions of the world critical to U.S. interests, such as Latin America.
Between 2000 and 2014, China has pumped over $400 billion in foreign aid, government-sponsored investment, and government-to-government loans to Latin America. While Chinese aid may not appear to be a problem at first glance, there are a number of issues experts have brought up regarding China’s push into Latin America. Some view China’s rise in the region as a direct challenge to U.S. interests and a move to establish itself as a regional rival to the United States. Indeed, a recent econometric analysis revealed that China’s investment and aid were targeted in such a way to challenge U.S. influence in the Americas. Others have gone as far as claiming that China’s seeks to establish locations in the Americas from which to spy on the United States. However, others believe that China’s goal is to discourage diplomatic recognition of an independent Taiwan.
Regardless of China’s geopolitical objectives, Latin American development pays a high price for Chinese aid. Some suggest that the primary driver of Chinese foreign aid and investment in Latin America is to fuel China’s miraculous growth, as China requires an abundance of food and natural resources in order to maintain its high growth rates. Over-dependence on China’s need for raw materials as a growth strategy may lead to future challenges in the region as commodity prices frequently fluctuate and many believe that the Chinese economy is slowing down. Chinese aid frequently requires the use of Chinese labor and supplies, contains few environmental regulations, and includes no requirements for good governance practices in recipient countries. This suppresses Latin American gains from Chinese investment and, in some cases, has led Latin American countries to deindustrialize certain sectors of their economies. These practices have prompted some to question whether Chinese aid can actually be classified as foreign aid.
A recent forecast of Chinese foreign aid to Latin America highlights some interesting revelations on Chinese intentions in Latin America and what the implications of U.S. involvement could be. This model suggests that the primary drivers of Chinese foreign aid and government-sponsored investment in a Latin American country includes: the government’s diplomatic recognition of Taiwan, its supply and availability of natural resources, Chinese rivalry with the United States, and the amount of U.S. foreign aid it receives.
The impact that cuts to U.S. foreign aid have on the level of Chinese aid and investment to Latin America has important ramifications. As the chart below demonstrates, reducing U.S. foreign aid to Latin American countries will likely result in China increasing its aid and government-sponsored investment to the region. There are two potential reasons. The first is that the decline in the supply of U.S. aid could encourage Latin American countries to seek alternative donors, such as China. The second is that China may see reductions in U.S. aid as an inexpensive opportunity to increase its influence in a region traditionally dominated by the United States. These factors suggest that reductions in U.S. aid to Latin America would amount to handing over its influence in the region to a country opposed to U.S. interests, like China.
Forecasted Implications of Cutting U.S. Foreign Aid to Latin America
Calculations based on: Freedom House, 2015; Gallagher and Myers, 2014; Hughes, 2016; USAID, 2016; Wolf et al., 2013 and World Bank, 2016.
Notes: This figure presents forecasts using Chinese GDP growth rates from the International Futures database which are between 5.8 and 8 percent annually for 2015 to 2020. For information on the anticipated impacts of a slowdown of the Chinese economy and details on the methodology please refer to the full paper.
In addition to ceding U.S. influence in Latin America to China, Chinese aid and investment in the region could have grave environmental impacts and hamper efforts to promote democracy and good governance in the Western Hemisphere. Simply put, President Trump’s desire to cut foreign aid weakens the international influence of the United States. The United States must continue to support a robust foreign aid program in Latin America, not only to provide humanitarian and development support, but also because it is in the national interest of the United States.