Mary Iwase | YPFP Member | February 23, 2025 | Photo Credit: Flickr
It has been over three weeks since President Trump and tech billionaire Elon Musk, who leads the controversial Department of Government Efficiency (DOGE), began dismantling the U.S. Agency for International Development (USAID) and its foreign aid programs. In early February, the White House released a fact sheet highlighting the agency’s “wasteful and abusive” spending over the years, citing examples such as $32,000 for a “transgender comic book” in Peru and $2 million for sex-change surgeries and LGBT activism in Guatemala. While the effectiveness of some of these programs is up for debate, USAID has long played a vital role in advancing bipartisan U.S. foreign policy objectives.
Consider USAID’s role in the undersea cable project in Palau. USAID provided $3.8 million to help build Palau’s second submarine cable, strengthening digital infrastructure in a region where China has poured over $6 billion into telecommunications projects. Chinese telecom firms like HMN Technologies (formerly Huawei Marine) have been accused of enabling cyber-espionage for Beijing, making a Chinese-built cable a potential security risk for Palau as well as the U.S. and its allies who rely on the same network. Moreover, China’s financing often comes with political strings, such as pressuring nations to sever ties with Taiwan—an issue particularly relevant as Palau remains one of its few remaining allies. Likewise, USAID’s $1.3 million investment in rehabilitating the Port of Manzanillo in the Dominican Republic helped prevent Chinese bidders from potentially leveraging the port for military or strategic purposes, which could pose a direct security threat to the U.S.
USAID is not the only agency facing potentially deep cuts. The Export-Import Bank of the United States (EXIM), the country’s official export credit agency (ECA), also plays a key role in countering China’s growing economic influence. In 2019, as part of the congressional reauthorization, EXIM launched the China Transformational Exports Program (CTEP) to support American businesses competing against Beijing’s state-backed investments. While this program has enjoyed strong bipartisan support, the controversial Project 2025 report criticized EXIM as a “protectionist agency” that distorts the free market, risks taxpayer funds, and should be abolished. Although President Trump claimed he had nothing to do with Project 2025 during the campaign, his administration has already embraced several of its proposals—raising concerns that EXIM’s funding, or even its existence, could soon be at risk.
The dismantling of USAID and cuts to development assistance programs do not necessarily mean the U.S. will cease investing in developing countries. Rather, the administration reportedly plans to redirect USAID’s funds to the U.S. International Development Finance Corporation (DFC), a government-run agency established during the first Trump administration to invest taxpayer funds in private-sector projects overseas. This shift would reduce humanitarian, grant-based aid and prioritize strategic initiatives—such as critical minerals—through private sector initiatives. As a result, China may seek to expand its own grant-based assistance in regions where DFC is unable or unwilling to invest due to bankability issues or income classification constraints.
Indeed, the Cook Islands, a strategically important nation in the Pacific, recently secured a $4 million grant from China after officials raised concerns about the withdrawal of USAID from the region. DFC, constrained by its classification rules, cannot invest in the Cook Islands because it is classified as a “high-income country.” Similarly, reports indicate that countries like Nepal and Colombia have received signs from Beijing that it is interested in stepping in to help fill the void of USAID’s funding. However, China’s capacity to maintain this level of support remains uncertain, given its growing domestic economic challenges, including rising unemployment, a real estate crisis, and declining foreign investment.
As the U.S. scales back its development assistance, the global balance of power is shifting. Whether this new approach bolsters America’s strategic interests or paves the way for China’s growing influence remains to be seen.
Mary Iwase is an international trade analyst and practitioner with expertise in technology, trade, and development finance. She holds a BA in International Affairs from George Washington University.
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