The U.S. is once again embracing the notion that money talks in geopolitics. On Monday, U.S. Secretary of State Mike Pompeo announced an infrastructure spending plan that’s being framed as an alternative to China’s One Belt, One Road initiative. According to Pompeo, the U.S. intends to give $113 million directly to fund digital, energy, and infrastructure connectivity. The plan also gives the Overseas Private Investment Corporation – an agency that helps American businesses invest in risky emerging markets, but which was on the chopping block a year ago – a stay of execution. OPIC will be merged with a branch of the U.S. Agency for International Development, and its spending cap will be doubled to $60 million.

Until this point, the Trump administration’s oft-touted vision for “a free and open Indo-Pacific” has been bereft of substance. The U.S. has joined India, Australia and Japan in reviving the moribund Quadrilateral Security Dialogue – a loose coalition intended to contain potential Chinese aggression – but the grouping has met only a couple of times and struggled to gain traction. U.S. security assistance to Indo-Pacific states has not increased substantially. Meanwhile, the Trump administration detonated the economic cornerstone of the previous administration’s Asia-Pacific strategy by withdrawing from the 12-nation Trans-Pacific Partnership trade pact. (Or at least it tried to – Japan, Australia and others have successfully resuscitated the plan, which is expected to be ratified by all signatories this year and begin courting new members, such as Thailand and Indonesia.)

In most Indo-Pacific states, particularly smaller ones with little desire to get caught in the cross-fire between China and the U.S., geopolitical strategies are dominated by economic considerations. So it’s welcome news for regional partners that the U.S. appears to be turning its attention back to the realm of economic statecraft.

At first blush, though, Pompeo’s plan is pretty underwhelming, especially compared to what China plans to spend on its One Belt, One Road projects. Between late 2013 and 2017, Chinese construction and investment in OBOR countries totaled around $340 billion, including at least $90 billion in 2017 alone, according to the American Enterprise Institute. But measuring the new U.S. plan against OBOR is misleading, for several reasons.

Apples and Oranges

First, the U.S. and Chinese approaches are apples and oranges and hardly a zero-sum game. Washington may not be channeling all that much public capital into the region, but U.S. businesses certainly are, even without government direction or backing. In 2017, cumulative U.S. foreign direct investment into Indo-Pacific states surpassed $840 billion, for example. This speaks to both the strength and weakness of the U.S. strategy. The U.S. government has a hard time directing money to specific projects, particularly the sort of commercially dubious but strategically important ventures China is pouring money into. Compared to Beijing, the U.S. also has a harder time employing all the tools of the state to open opportunities for U.S. firms abroad, and the U.S. has no equivalent to China’s behemoth state-owned enterprises and policy banks ready to do Washington’s bidding. On the other hand, U.S. investment is likely more sustainable over the long term and is typically more warmly received by partner governments, which are becoming increasingly wary of Chinese economic coercion and conditionality.

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Second, the U.S. isn’t going it nearly as alone as China. Contrary to common perception, China ranked only fifth among ASEAN’s largest sources of FDI in 2016, behind the EU, the U.S., Japan and intra-ASEAN flows. Until Chinese FDI surged in 2016 and 2017, its annual investments in the Southeast Asian bloc were roughly on par with those from Australia, South Korea, India and Taiwan. The U.S. also has the most sway in multilateral institutions like the World Bank, and the second-most in the Japan-led Asian Development Bank. (By the same token, China is the dominant voting shareholder in the 86-member Asian Infrastructure Investment Bank.)

Notably, the same day as Pompeo’s speech, the U.S., Japan and Australia announced another trilateral infrastructure investment initiative. Japan’s involvement in the region, in particular, is important because the U.S. is a relatively minor player in the infrastructure world. Firms from Japan, along with South Korea and several European countries, routinely find themselves going head to head with Chinese firms over signature road, rail, port and energy infrastructure projects. Japan was also an early pioneer of manufacturing offshoring, becoming a dominant source of employment in Southeast Asia. Moreover, Tokyo is also willing to take a heavier hand in pushing private investment toward projects it deems strategically important, often paving the way with heavy amounts of official development assistance.

Third, Chinese pledges are by no means the same thing as cold, hard cash. Beijing is fond of announcing eye-popping deals at high-profile summits and leaving the details for later. (It’s hardly the only government that does this.) For example, of $24 billion in projects and loans promised to the Philippines over two years ago, about $150 million has been distributed – partly because of various implementation snags, but possibly also because Beijing has gotten Manila’s reluctant cooperation on the South China Sea even without forking over bags of yuan. Moreover, the OBOR is littered with projects that face long odds of ever breaking even, and Beijing itself has begun scrutinizing potential projects more carefully. For similar reasons, governments are starting to tread more cautiously with Chinese investment, pointing to countries like Pakistan and Sri Lanka as examples of how China’s alleged “debt trap diplomacy” can leave host countries holding the bag, beholden to Beijing’s strategic whims, and mired in political scandal. Over the past two months, projects in Malaysia, Myanmar and Indonesia, among others, have been put on hold. The U.S. would be particularly foolish to try to match Chinese spending dollar for dollar when it has reason to believe OBOR may just collapse under its own weight.

Finally, FDI alternatives aren’t the only thing the region needs from the U.S. in the economic realm. It helps, to be sure, and would help more if the U.S. and its partners could support riskier projects to help cover the region’s vast infrastructure gap over the long term. (According to the Asian Development Bank, regional states need to spend at least $60 billion on infrastructure annually until 2030 to sustain their economic growth.) But just as important is sustained market access for regional exports. Aid and investment only do so much if local firms don’t have customers. And increasingly, Chinese consumers are giving Beijing another source of leverage. By 2015, according to ASEAN figures, China had become the top destination for Southeast Asian exports by value, at 11.4 percent. According to China’s Ministry of Commerce, imports from ASEAN grew another 20 percent in 2017.

U.S. Goals

For the U.S., the goal isn’t to stamp out Chinese economic influence in the region altogether. This would be impossible to do. Most ASEAN states are reluctant to antagonize China over hot-button issues like the South China Sea not because they are wholly dependent on Chinese largesse and lack alternative trading partners but because even if, say, only 10 percent of their FDI comes from China, that’s still a lot of money. There’s little point in risking it for the sake of angering China with moves that won’t get Beijing to back down anyway if the U.S. stays largely on the sidelines.

Rather, U.S. goals are twofold: The first is to ensure that local states do not become dependent on Chinese aid, investment and consumer power to the point where China can dictate terms about their relationships with the U.S., particularly in the military realm. The second is to reinforce the so-called rules-based international order – centered on freedom of navigation, intellectual property protections, anti-corruption, and so forth – that has helped unlock the region’s growth and allowed U.S. firms to compete on a level playing field.

The Trans-Pacific Partnership would’ve played a major role on both fronts (and its smaller replacement will as well, despite the U.S. absence). At this point, opening the U.S. market further to low-cost exporters, even strategically important ones in South and Southeast Asia, is likely a non-starter for the White House, whether for political or ideological reasons. Nonetheless, Pompeo’s plan, however diminutive, is a clear sign that a more comprehensive U.S. strategy for the region is starting to take shape.

Phillip Orchard
Phillip Orchard is an analyst at Geopolitical Futures. Prior to joining the company, Mr. Orchard spent nearly six years at Stratfor, working as an editor and writing about East Asian geopolitics. He’s spent more than six years abroad, primarily in Southeast Asia and Latin America, where he’s had formative, immersive experiences with the problems arising from mass political upheaval, civil conflict and human migration. Mr. Orchard holds a master’s degree in Security, Law and Diplomacy from the Lyndon B. Johnson School of Public Affairs, where he focused on energy and national security, Chinese foreign policy, intelligence analysis, and institutional pathologies. He also earned a bachelor’s degree in journalism from the University of Texas. He speaks Spanish and some Thai and Lao.