No Bandaids For Cuts: China May Not Replace USAID

February 10th, 2025

Blake McFalls

On his first day in office, Donald Trump made a bold move to freeze all U.S. Agency for International Development (USAID) funding. The freeze not only shocked thousands of workers in the U.S. government, but shocked the world, as USAID provides $40B in foreign aid, or 40% of all foreign aid globally. The move will first devastate the most dire humanitarian crises in the world, such as the ones in Gaza and Sudan, but next, it will embolden former USAID beneficiaries to find new sources of aid. Of course, China is the number one candidate. In the last decade, China has used development projects to expand its diplomatic reach, and China will find the USAID removal as a prime opportunity to further its ambitions.

The history of USAID dates back to the Cold War. In 1961, JFK established the agency to counter Soviet influence with the Foreign Assistance Act. It worked, but also went beyond that, as USAID helped eradicate smallpox in the 1960s and HIV from the 1980s-2000s. All in all, USAID’s goals are vast, spanning from aiding countries in conflict, growing the economies of developing countries, and putting a stop to humanitarian crises and diseases. All of these causes have contributed to growth in American soft power, acting first as a Soviet counter and still today as a Chinese and Russian counter.

This progress will fade the longer that USAID is frozen, and will be eliminated if USAID is terminated altogether, especially because of China. The China International Development Cooperation Agency, also known as China Aid, spent $1.34T this millenia on infrastructure projects for developing countries in its Belt and Road Initiative (BRI).

Though it may seem like China will be able to further the BRI and other projects because of the American void, that is not necessarily the case. First, Chinese foreign aid is much different than American aid. Chinese aid is much more transactional than American aid from USAID, seeking direct economic return instead of the growth of receiving economies. For example, 80% of BRI loans went to countries struggling with debt, putting most recipients in a crushing debt trap rather than actually growing their economies. Thus, the era of unconditional aid to developing countries is gone with the departure of USAID, and not replaced by China. Second, China faces problems at home. Not only is consumer confidence tapering, now at a historic low, but Chinese strength in net foreign direct investment (FDI) inflow is fading. China’s private equity market, long having been its savior, is not seeing foreign firms revitalize Chinese businesses like it used to, largely because investors are no longer able to go through the venture capital hub of Hong Kong to reach Chinese equities. This has meant that China’s net FDI inflow went from $344B in 2021 to $-4.6B in 2024, an alarming statistic that will make the Chinese government more hesitant to use non-governmental organizations (NGOs) to streamline foreign investment. Third, China is not interested in many of USAID’s pillars, primarily humanitarian aid. While the U.S. spends around $15B annually on humanitarian aid, China only spends around $2.26B annually, largely due to China’s non-interfering approach to humanitarian crises. If China is unwilling and unable to serve the needs of the developing world, then the world will never actually develop without USAID.

Trump’s America First approach to foreign policy has prompted critics to say that it is putting China first, America last, when in reality, it is just putting everybody last.