November 24, 2018
The media have been touting a new foreign aid initiative by the Trump administration which will create an agency that will provide $60 billion worth of loans, loan guarantees, and insurance for investments in developing countries. This is portrayed as an effort to counter China’s growing influence in the developing world.
It would have been helpful to put this number in some context. First, if this is an effort to counter China, it is likely to come up short. China has already paid out more than $900 billion as part of its “One Belt, One Road” initiative. Presumably, its spending will increase in this area in the decade ahead.
The second point is that news articles should put the number in some context for readers who are concerned that all their tax dollars are going to foreign aid. This money is being dispensed to subsidize loans, guarantees, and insurance. It is not a handout. If we assume that 20 percent of the money is a subsidy (i.e. allowing below market rates), this would amount to $12 billion. That would come to a bit more than 0.2 percent of federal spending, at the point where it reaches the $60 billion mark, presumably in around five years.
Note: This is corrected from an earlier version, which did not treat the $12 billion as an annual subsidy.
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