America’s Response to China’s Belt and Road Initiative

China ambitious Belt and Road Initiative has attracted the attention of many economists worldwide. Many of these economists believe that the Belt and Road Initiative is part of China’s vision of a world where America will no longer be the dominant superpower.

It is possible that this may be true. China has committed a large chunk of its resources towards this project. More than $1 trillion worth of investments have been poured into projects which are directly or indirectly related to the Belt and Road Initiative.

China’s increasing influence has made the United States very worried. This is the reason that, in August 2018, the United States, Japan, and Australia announced their intention to increase their presence in the Indo Pacific region. This can be seen as America’s reply to the Belt and Road Initiative. However, it may be too little and too late! Prima facie, it does not seem like this initiative will be very effective.

In this article, we will have a closer look at this counter-initiative by these countries. We will also try and understand why this response may not really be effective.

Why does America want to Respond?

American economists have long held the opinion that China is using economics as a cover for increasing its strategic presence. America is worried that China is making a lot of unsustainable loans to countries that do not seem to have the means to pay them back.

Almost all economically backward nations in the world owe money to China. This is true of countries like Sri Lanka and Pakistan in the Indian subcontinent. It is also true of countries in Eastern Europe, Africa as well as Latin America.

The problem with these loans is that many of them have debt for equity swaps which have been stipulated if the borrowing country is not able to pay back the loan. China has already exercised this right in some places. China had lent money to Sri Lanka for building a port.

Now, Sri Lanka is unable to pay back the loan. Hence, China has taken possession of the port! It is likely that this port will be used for military purposes. America and other countries are wary of China’s intentions. Hence, a response is being given, and America has taken the lead.

Why are Other Countries Interested?

Apart from being involved in a trade war with America, China is also a dominant player in regional politics. China has strained relationships with many other countries such as Australia, the Philippines, Japan and even India. India considers China to be an ally to their enemy Pakistan. Also, India considers China to be its biggest economic competitor in the region.

Other dispute such as the South China Sea dispute has caused many countries in the region to become wary of China’s growing influence. This is the reason why many countries are teaming up against China’s Belt and Road Initiative.

The American Response

The United States is the leader of this partnership. This is the reason why it has committed to giving $200 billion for projects in the Indo-Pacific region. Other partners such as Japan have volunteered to give $50 billion towards the cause.

While these amounts are sizeable, they are very small in comparison to $1 trillion that China is willing to spend. However, it seems like America’s strategic intent is not to beat China but rather to keep its intentions in check.

The Problems with this Response

• High Debt: America and Japan do have the capability to deploy much more funds. However, both these nations are highly indebted right now. Their politics revolved around cutting unnecessary expenses. Neither America nor Japan will be willing to borrow more funds to invest in these projects. Also, since these countries already have so much debt, they will only be able to borrow money at very high interest rates.
• Prioritization: President Trump has already committed that he is going to overhaul America’s inner cities and crumbling infrastructure. Those projects are supposed to cost close to $1 trillion. There is no way America will prioritize projects in the Indo Pacific region ahead of its own projects. Hence, even though $200 billion has been committed, it is likely that the funding will be delayed.
• America First: Many countries like India are not sure about joining the alliance. This is because of the hardline “America First” policy that is being followed by President Trump. America has been imposing tariffs on many nations including India and Australia. Also, Trump has threatened to pull out of NAFTA and the Trans-Pacific Partnership. As a result, the American reputation has taken a big hit. Other nations are not really sure about America’s commitment. They believe that it is likely that America might unilaterally change its decision in the future. Hence, these countries do not want to invest significant resources in an American partnership.

The bottom line is that the increasing number of projects in the Belt and Road Initiative is a testimony to America’s dwindling power. The purpose of this partnership is to provide competition to the Chinese government. If the government is engaging in predatory lending, only then will this partnership pitch in and rescue the smaller country. This partnership might not topple China’s supremacy in the region but will be able to keep its strategic intentions in check.