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A Smarter Idea Than Starting a Trade War

To curb China, the U.S. could increase development aid to other Asian countries. Sometimes, doing good is good strategy.

Lakruwan Wanniarachchi/AFP/Getty Images

A trade war between the United States and China is simmering. Since President Trump’s March announcement of planned tariffs for metal imports, Beijing has threatened American pork and pipes, the White House has targeted Chinese electronics, and rhetoric continues to escalate. Meanwhile, in a dramatic reversal, President Trump has suggested the U.S. could rejoin the Trans-Pacific Partnership, a trade pact to which China is not a party. Clearly, China’s rise alarms many American policymakers. But instead of the zero-sum game destabilizing markets right now, the U.S. could be reasserting its leadership in a more productive way: by focusing on the growth and developments needs of China’s neighbors.

Anyone who has recently been in Colombo, Manila, or even Ulaanbaatar knows that traffic gridlock and crumbling infrastructure is the new norm—the result of the fastest urbanization the world has ever seen. Asian countries struggling to deal with this explosive growth are finding a helping hand from China. 

The Asia-Pacific region now accounts for forty percent of the world’s gross domestic product (GDP) and roughly 60 percent of global growth. Alongside Africa, it is home to the world’s fastest growing megacities and almost half of the world’s poor. Its development needs are staggering. The region’s annual $1.7 trillion infrastructure gap means by 2030, Asia will be $26 trillion short in meeting infrastructure needs, according to the Asian Development Bank

Over the past decade, in the absence of U.S. leadership, China has been plugging this gap, most visibly through its “One Belt and Road” to connect and develop 68 Eurasian countries. China is set to spend a trillion dollars or more in large-scale infrastructure across most of Asia and parts of Africa, the Middle East, and even Europe. This may dramatically accelerate with the recent news China will be creating a foreign aid agency. If the 1990s were all about “Made in China,” the 2020s will be known for “Made by China” as the Chinese continue building thousands of paved highways, bridges, tunnels, and ports across Asia and beyond.

While countries pursue Chinese funding, it can come with significant problems. In addition to Chinese investment coming with political strings attached, sometimes on key international votes, Chinese deals are often soft loans that could increase sovereign debt risks. Countries could be hard-pressed to pay their debt and in turn be dependent on the Chinese. In Pakistan, China is financing about 80 percent of the country’s $62 billion debt per the Center for Global Development. Chinese state-owned enterprises often build and operate infrastructure projects, including national security areas like Hambantota port in Sri Lanka. Chinese workers historically displace local workers with little transfer of skills, and inexpensive Chinese imports displace local firms.  

Chinese investments also frequently have minimal environmental, social and gender protections protecting vulnerable populations, including marginalized groups facing displacement and resettlement. And Chinese deals have a mixed record on stimulating local economic growth, with high-cost-low-use “white elephant” projects left behind in much of Africa, Latin America, and Asia. To its credit, China is evolving its model, but it still has a ways to go.

Meanwhile, the United States and others are increasingly alarmed by China’s dominance. In the past months alone, in addition to new tariffs against China, the Trump administration launched a new infrastructure working group as part of its trilateral discussions with India and Japan. Congress meanwhile introduced bipartisan legislation known as the BUILD Act to create a new U.S. development finance agency to improve U.S. competitiveness overseas by investing in infrastructure financing.  

But this only works if Congress also safeguards and increases U.S. international development funding to protect core U.S. interests overseas. In particular, Congress could leverage U.S. strengths in Asia by investing in technology and cybersecurity, urban planning and infrastructure financing, food security and climate change, and education and health. New partnerships between governments and the private sector could recruit investors and generate a pipeline of bankable projects for public-private partnerships. And doubling down on U.S. efforts to promote good governance, civil society, gender equality, and a free and independent media will be even more critical so that Asian citizens can hold their own governments accountable for the deals they cut with China or anyone else.   

Some of this can be done with other countries like India and Japan, and some will have to be done with China. The simple truth is no one country alone can plug the growing global infrastructure gap. But even working with China, perhaps by supporting Chinese initiatives such as the Asian Infrastructure Investment Bank, while insisting on global development standards and sustainable development projects in return, could come with strategic benefits: China should not be able to dictate the terms of Asian development on its own.

Many Asian policymakers want options with multiple countries to advance their pressing development agenda. They do not want to beholden solely to China and lose their own sovereignty in exchange for economic growth. American policymakers, too, want to limit China’s influence. And one way or another, the world needs to meet its growing infrastructure needs and combat poverty. The simplest solution to all three challenges may be to offer the rest of Asia a carrot, rather than threaten China with a stick.