This month, Chinese President Xi Jinping pledged more than $29 billion in new lending commitments at the triennial Forum on China-Africa Cooperation. Washington has once again misunderstood this as a symbol of Chinese economic strength.
Like a deer caught in the headlights, the United States has spent the past few years responding to China’s vast lending programs in Africa and beyond by constructing its own equivalents, mostly lending through institutions such as the International Development Finance Corp. (DFC) and Export-Import Bank with tweaks to their efficiency here and there.
But trying to outmaneuver China by being more like China is a mug’s game. Chinese banks can easily out-lend U.S. equivalents because they are better structured toward this goal. And perhaps more importantly, they need to lend money to whoever will buy Chinese goods and services because China’s economic growth is now precariously dependent on sustaining a positive trade balance.
The best way to offer a real economic alternative to China is for the United States to play to its own strengths. For instance, if the United States is serious about strengthening U.S.-Africa economic relations, it should instead focus on African economic needs and the United States’ own domestic economic drivers. Rather than parroting Chinese lending practices, it could more easily expand popular trade agreements such as the African Growth and Opportunity Act (AGOA) or the Generalized System of Preferences (GSP) to benefit both African exporters and American households.
But before U.S. lawmakers can get behind these more positive forms of engagements, they may need to recognize that China’s addiction to credit is not in fact a reflection of strength but rather the symptom of a serious economic problem.
The driving economic reality for China today is that it has very low levels of consumer demand, its domestic investments are oversaturated with debts and falling investments, and its economic growth prospects have become heavily reliant on maintaining a positive trade balance. As a result, China’s export credit agencies are under huge pressure to stoke demand internationally by lending to anyone who will buy China’s exports. This vulnerability is compounded by the trade tariffs imposed on Chinese exports by several high-income countries. In many ways, China is more dependent on the markets it lends to than those markets are on China.
While many authors have focused on the overall decrease of Chinese lending to Africa and Latin America since 2016, China’s Ex-Im Bank has published tallies that show global overseas lending increases from $98 billion in 2016 to more than $134 billion in 2023. Meanwhile, China Ex-Im’s domestic loans to Chinese exporters have increased from roughly $34 billion to $92 billion in that same period. This vast flow of credit for exports is driven by China Ex-Im’s access to a much broader and deeper pool of finance than the DFC or U.S. Ex-Im as well as their greater financial independence.
Just like China Development Bank (CDB), China Ex-Im mostly issues international credits in U.S. dollars that it gets from China’s State Administration of Foreign Exchange—a financial powerhouse that is constantly looking to invest or lend the trillions of U.S. dollars that China has amassed in the four decades since it launched its export-led growth model. But China Ex-Im and CDB also borrow dollars on Chinese capital markets by issuing domestic bonds. China’s strict capital controls make it difficult for investors to do much with surplus U.S. dollars, so there is a strong demand for these bond issuances.
By contrast, export credits are a burden for the United States. U.S. export credit agencies (DFC and U.S. Ex-Im) have very little financial independence, and they depend on congressional appropriations of taxpayers’ money. In other words, their financing is approved through political consensus every single year—an unreliable process at the best of times.
More importantly, though, the United States does not need to go toe-to-toe with China on debt when it has a far better economic proposition.
One of the ways in which many African countries earn enough to service their debts is to export masses of raw materials to China. But very few of them export finished goods and services to China, and—due to China’s overdependence on exports—there are strong economic incentives for China to overpower any such possibility. In some cases, there is even concern that African textile exporters are suffering a “premature deindustrialization” due to their trade with China.
Conversely, the United States can afford to sustain trade imbalances precisely because its economy is structured very differently from China’s. In the United States, economic growth is largely driven by consumer demand, with a healthy balance of investment from domestic and international sources. It’s these forces that mean the United States can post 3 percent growth in GDP while sustaining persistent trade deficits.
In practice, this means that unlike Beijing, Washington can offer Africa the export markets it needs to develop its nascent industries of finished goods and create more sustainable trajectories for economic development. More broadly, industrialization means that low-income countries are less dependent on the vicissitudes of commodity markets to service their national debts and make provisions for their people.
To those who fear increasing imports from low-income countries, it is important to remember that U.S. industries still need affordable inputs and U.S. consumers enjoy cheaper goods. Moreover, low-income countries’ nascent industries pose no real threat to U.S. industries that graduated out of low-tech manufacturing some time ago. Indeed, U.S. firms have spent the past 30 years sourcing billions of dollars’ worth of textiles and low-tech goods from China, so there should be no concern about shifting these supply chains to Africa or elsewhere. This would also align with current “friendshoring” initiatives.
But the best part is that the United States already has the infrastructure to make this the cornerstone of its economic engagements with Africa and beyond.
AGOA was created in 2000 at a time when the U.S. focus on Africa was unencumbered by the global war on terrorism or strategic competition. The technical jargon states that AGOA is a nonreciprocal preferential trade agreement, or PTA, but put simply, it is a U.S. trade policy designed to promote African industrialization, African jobs, and preferential access to U.S. consumers.
The agreement’s nonreciprocal nature is also its greatest strength. This means that unlike GSP, a PTA that expired in 2021, it does not place quotas on the sourcing of U.S. inputs or make the tariff exemptions overly complicated.
Expanding and internationalizing AGOA would offer a powerful alternative to China’s lending programs. It could be rebranded to the “International Growth and Opportunity Act” and target other low-income regions such as Latin America and Southeast Asia. It could also incorporate other advanced economies that have a similar economic structure to the United States. For want of a better analogy, it could be Washington’s answer to China’s Belt and Road Initiative.
More broadly, the United States could create more diplomatic engagements around PTAs like it. Biennial or triennial forums could be hosted under their umbrella, where more senior political and trade representatives are brought together in order to ensure they are maximizing the agreement’s opportunities. These forums could also be used to announce other engagements such as scholarships and training.
Lastly, a focus on PTAs could also flip the debate on the “race to the bottom” over standards. Whenever the United States has promoted loan-backed business competition with Chinese equivalents, there has often been pushback that Washington should relax its ethical and environmental principles so that U.S. firms can be more competitive. But the appeal of trade agreements for African markets means that U.S. officials can maintain the same standards they would apply within their own markets.
But regardless of all this, perhaps the most important reason that the United States should avoid competing with China for more borrowers is that many low-income countries are now reaching their limits to repay debts. We’ve been here before, when debt for economic growth was lauded as foolproof in the 1960s and ’70s, only to become a punishing burden on the world’s poorest in the 1980s and ’90s. The United States should not be so easily tempted to repeat these mistakes of the past.
Nowadays, Washington seems primarily motivated to lend due to its fear of Beijing’s dominance. But if (as expected) China’s economy eventually rebalances in the medium term—and thereby relies less on maintaining a positive trade balance—then Beijing would likely reduce its export credits, which could leave the United States holding a bunch of debts it may never have issued absent its competition with China.
Granted, some forms of infrastructure such as ports and telecommunications may be considered a security concern, and the United States can leverage its export credit agencies toward those specific competitions. But for most Chinese projects involving sports stadiums, highways, and school buildings, there is no obvious reason to worry. More concretely, the United States needs to have a clear understanding of why it wants to go toe-to-toe with Chinese loan-backed projects. For instance, if the goal is simply to develop stronger diplomatic relations, then deploying poor imitations of Chinese programs is hardly a recipe for success.
This all points to the fact that the United States needs to run its own race and play to its own strengths.
AGOA is coming up for renewal in 2025. This is the best opportunity the United States has had in a long time to redesign and build out a truly meaningful platform for economic engagement with countries in Africa, Latin America, and beyond—and crucially one that plays to U.S. strengths.
It would mean that when Beijing once again says to African leaders, “We’ll lend you money to buy our goods and services,” Washington can say to those same leaders, “We’ll drop tariffs so you can sell us your goods and services.”
But more to the point, it would mean that U.S. economic policy is driven by what works best for the United States and its partners in the long term and not the false hope of what seems to be working for its competitors for now.
The post The U.S. Has a Better Offer for Africa Than Debt appeared first on Foreign Policy.
