A new deal struck on the U.S. debt ceiling stands to curb defense spending and cap important diplomatic initiatives aimed at countering China’s growing geopolitical influence, setting the stage for more political showdowns between Washington’s budget hawks and its China hawks.
The deal, brokered between U.S. President Joe Biden and Republican House Speaker Kevin McCarthy, lifts the United States’ $31.4 trillion debt ceiling limit until the first quarter of 2025—after the next presidential election cycle—and caps nondefense spending in 2024 to 2023 levels. There aren’t budget caps after 2025, but there are nonenforceable spending level targets of just 1 percent increases in federal spending.
The agreement was struck after weeks of heated negotiations and political infighting within the Republican Party, where a wing of sudden budget hawks had been pushing for steeper federal spending cuts to begin cutting away at the ballooning federal debt, nearly one-quarter of which was accrued on former President Donald Trump’s watch. It passed the House on Wednesday night, and lawmakers expect it to pass through the Senate, with possible amendments, by the weekend.
While most Democrats and most Republicans in the House voted for the deal, it also stands to cut back key foreign aid and diplomatic initiatives and squeeze the massive defense budget at a time when prominent national security experts are urging greater spending on the military to counter China and continue supporting Ukraine in its war against Russia. Indeed, some Republican lawmakers have come out criticizing the deal, not because federal spending is too high, but rather because the Biden administration’s defense budget proposal is too low.
Some lawmakers and experts say the alternative of no deal to spend past the debt limit—meaning the United States defaulting on its obligations—could send massive shockwaves through the global economy and undermine U.S. standing abroad.
“The U.S. derives a lot of our power from being the world’s currency,” said Rep. Sara Jacobs, a Democratic member of the House Foreign Affairs Committee. Defaulting “could have huge implications for partners around the world, and also for how people view us and whether they really believe we are credible partners.”
The agreement also spares defense spending from the spending cap, dealing a blow to efforts by Democratic lawmakers to begin curbing what they see as a lopsided focus on defense spending and instead boost funding for diplomacy and development.
While the debt ceiling agreement outlines the broad contours of how much the federal government can spend, it will ultimately be up to Congress to dictate the details of what money is spent where, all within that cap, in the coming months. That will be hashed out in congressional appropriations committees. Twelve subcommittees oversee discretionary spending on different aspects of the federal budget, including one for Homeland Security, one for the State Department and foreign operations, one for agriculture and rural development, and more.
But a look at what Biden’s proposed budget for fiscal year 2024 was before this agreement was reached, compared to current fiscal 2023 levels, shows what programs likely won’t be getting the spending increases they had hoped for. The budget plan that Biden unveiled in March, which congressional Republicans derided as “dead on arrival,” included $400 million for a fund to counter China’s global activities, $2 billion for infrastructure projects around the world, and another $2 billion to boost Western investment in Indo-Pacific economies with an aim of countering Chinese coercion.
While that funding might be in jeopardy, China doesn’t face the same constraints. “If anything, they’re putting their foot on the gas,” said Bonnie Glick, a former deputy administrator of the United States Agency for International Development during the Trump administration. “So that puts us in a complicated position.”
Glick added that lawmakers are in a tough position trying to pay for counter-China programs while trying to rein in U.S. debt, which stands near $32 trillion. China owns more than $980 billion of that.
Other planned foreign policy spending initiatives that will likely be put on hold under the current debt ceiling deal from Biden’s fiscal 2024 request, compared to spending in prior years, include: A planned 77 percent increase, coming to a total of $1.7 billion, in support for European and Eurasian economies, with a focus on Ukraine and Moldova to counter Russia; a 69 percent increase in spending on global climate change and environmental protection initiatives, coming to $4.3 billion; a 20 percent increase on food security programs, coming to $1.2 billion, and an 11 percent increase on global health security, coming to $10.9 billion.
“I do have some concerns around what the cut to nondefense discretionary spending would mean for our foreign assistance,” said Jacobs. “But overall, the fact that we were able to reach a deal is really important for our national security.”
The U.S. military was spared from the largest cuts. The deal will lock in Biden’s request of $886 billion for defense that’s set to take effect at the beginning of the new fiscal year in October, a 3.3 percent increase, and a further 1 percent increase for 2025 that will bring the Pentagon’s budget to almost $900 billion.
But with inflation growing at a nearly 5 percent clip, defense hawks worry that the spending hike won’t be enough.
“There are going to be a couple of lost years, I think,” said Thomas Spoehr, a retired three-star Army general and the director of the Center for National Defense at the Heritage Foundation, a conservative think tank. “Everybody talks about how the Navy is too small. The Air Force is also too small in terms of fighters and how many aircraft they’re buying. 2024 and 2025 promise not to be able to make up any of that lost ground.”
Some defense experts likened the limited growth in defense spending to Obama-era sequestration that capped defense spending, something defense hawks say set back efforts to modernize U.S. military capabilities by years. While the Pentagon will have more time to plan for these spending limits than it did for sequestration, “the severe fiscal constraints will be apparent,” said Mark Cancian, an expert on defense issues with the Center for Strategic and International Studies think tank. “And that will change what the [Department of Defense] can do, the programs it can support, and the strategy.”
Notably, the debt ceiling deal ensured that spending to build up Ukraine and Taiwan’s militaries would come out of separate requests outside of the Pentagon’s base budget. This means that Congress could authorize increased spending for these two cases separately from the spending cap in emergency supplemental packages. But that also sets up new political battles over whether those supplemental funding provisions could be passed by budget hawks increasingly frustrated with McCarthy’s deal with Biden and what they see as unchecked government spending.
“Once you start opening the door and proposing a Ukraine supplemental, everyone in Congress will see that as a way to evade the caps,” said Spoehr.
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