The Indo-Pacific region has emerged as the center of global strategic competition, characterized by its vast population, significant economic output, and pivotal maritime trade routes.
With over half the world’s population and nearly two-thirds of global GDP, the region plays a crucial role in global security and economic prosperity.
However, China’s increasing geopolitical and economic presence has prompted various Indo-Pacific strategies from Western nations.
In light of these critical dynamics, the Trump administration has been criticized for failing to articulate a coherent strategy for US engagement in the region.
The administration’s most notable actions include reducing funding for the US Agency for International Development (USAID) and imposing high tariffs, which could potentially harm the economies of Indo-Pacific nations and diminish American goodwill.
Compounding these issues, Defense Secretary Pete Hegseth has called on Indo-Pacific countries to significantly increase their defense spending, suggesting a target of 5 percent of GDP.
Even the largest defense spenders in the region would face challenges in meeting this ambitious target, which could shift resources away from vital sectors needed for long-term stability and economic growth amidst already strained financial capacities.
While security remains essential, the decrease in economic engagement alongside an increase in defense spending may alienate key partners in the Indo-Pacific.
This situation creates opportunities for China to fill the vacuum, as Beijing is prepared to provide development financing and infrastructure investment that many local governments desperately need.
The imbalance in US strategy—that prioritizes military alliances without adequate economic and diplomatic engagement—risks diminishing America’s long-term strategic influence in this vital region.
USAID’s Role in the Indo-Pacific: A Gateway to US Influence
Historically, USAID has been integral to maintaining US influence in the Indo-Pacific.
With operations in over thirty countries and numerous projects throughout the Pacific Islands, USAID has worked to promote a free and open Indo-Pacific by addressing significant challenges in the region.
These challenges include heightened security threats from China and North Korea, the accelerating impacts of climate change, and a considerable infrastructure gap that hinders economic progress and connectivity.
USAID’s initiatives aimed to eliminate infrastructure bottlenecks, enhance climate resilience, promote good governance, and stabilize fragile environments were vital to supporting regional growth.
However, with the Trump administration’s decision to halt foreign aid under an executive order reviewing US assistance, many of these essential development ties have been severed.
The limited alternatives available mean that China is positioned to step in with targeted aid and infrastructure investments that continue to grow its influence while fostering dependency.
China’s Foreign Aid Strategy: A Challenge for the US
In Washington, there’s a tendency to overestimate the US capacity for coalition-building while underestimating that of China.
Former Secretary of State Antony Blinken emphasized this gap, pointing out that China lacks the alliance-building capabilities that the United States possesses.
Noteworthy multilateral initiatives like the Quadrilateral Security Dialogue and AUKUS highlight America’s coalition-building efforts in the Indo-Pacific, yet China has demonstrated that influence can be established without formal alliances.
Through its Belt and Road Initiative (BRI), China has created a vast network of strategic infrastructure—serving both local developmental needs and advancing Beijing’s long-term economic ambitions, such as reducing dependence on key chokepoints.
While often criticized for fostering asymmetrical dependencies, BRI projects address genuine gaps that Western alternatives have for too long overlooked.
However, these economic ties come with significant political expectations, notably adherence to the “one China” policy.
Countries such as Pakistan, Cambodia, and Myanmar have supported China’s diplomatic positions in return for financial backing.
Notably, Cambodia has blocked criticism of China’s claims in the South China Sea from the Association of Southeast Asian Nations.
Despite some backlash, as seen when Nepal canceled the Budhi Gandaki Hydropower Project due to transparency concerns and Malaysia renegotiated its East Coast Rail Link for improved local terms, many Indo-Pacific countries are increasingly interested in collaborating with the US on economic initiatives.
A recent partnership between the US and the Philippines to co-fund a major railway illustrates the potential when the US actively engages in the region, with Filipino leaders asserting the need for military and economic support to go hand-in-hand.
As investment gaps continue to impede progress across the Indo-Pacific, countries may struggle to reject Chinese funding entirely, particularly in light of limited viable alternatives.
China Quickly Fills the Space Left by the US
China has rapidly moved to occupy the gaps resulting from America’s retreat from foreign aid.
Following the cancellation of US child literacy and nutrition programs in Cambodia, China swiftly announced similar initiatives.
The US had previously funded around 30 percent of demining operations in Cambodia, aimed at eliminating landmines left from the Vietnam War, but has now seen that space filled by China through a new $4.4 million commitment to support these projects.
In Myanmar, the US response to a major earthquake lagged behind that of other countries; it was only after days of delays that the US deployed a small USAID emergency team to provide aid, pledging just two million dollars compared to China’s fourteen million.
This shift poses risks, as natural disasters are frequent and devastating for economies across the Indo-Pacific, where the US has historically led relief and recovery efforts.
Moreover, in the Pacific Islands—one of the most aid-dependent regions—China has initiated new development partnerships in the wake of reduced US assistance, promising to support climate change efforts through small-scale projects and investments in clean energy and infrastructure.
Alongside multilateral initiatives, China has sought to solidify bilateral ties, evident in its recent agreement with the Cook Islands to strengthen cooperation.
Beyond expanding development aid, China is investing effort into diplomacy to stabilize relationships with Southeast Asian nations adversely impacted by the American trade war.
In April, Chinese President Xi Jinping embarked on a diplomatic tour through Vietnam, Cambodia, and Malaysia, presenting China as a reliable partner amidst global economic uncertainty.
The withdrawal of US foreign assistance has inadvertently given China an opportunity to enhance its soft power across the Indo-Pacific at the expense of American influence.
Strategies for US Re-engagement
The Indo-Pacific region desires not just military alliances but tangible solutions—railways, schools, and hospitals.
The US retreat from economic aid delivers a detrimental message during a critical time.
To maintain strategic relevance in the Indo-Pacific, the US must adjust its approach to rebalance military and economic engagement.
President Trump should consider a visit to the Indo-Pacific to reinforce alliances and demonstrate US commitment to regional engagement, exploring new avenues for economic collaboration.
Congress should work to expand the US International Development Finance Corporation’s (DFC) capacity and mandate, which has become vital for US economic strategy following the USAID reduction.
Given the DFC’s role as a counter to China’s Belt and Road Initiative, strengthening its framework is essential for establishing a sustainable and transparent alternative to China’s development financing across the Indo-Pacific.
Additionally, the US government should increase support for improving private sector investment opportunities in Indo-Pacific markets and expand access to political risk insurance, helping to compete effectively with China’s development financing structures.
It’s critical that the Trump administration pursue an economic strategy in the Indo-Pacific that aligns with US strategic objectives.
This strategy should prioritize supply chain resilience while fostering cooperative economic growth and development with partners in the region to ensure continued US influence.
Ultimately, the withdrawal of foreign aid threatens to undercut America’s economic, diplomatic, and strategic standing in the Indo-Pacific.
To counter China’s expanding influence, the Trump administration and Congress need to urgently reconvene and enhance US economic partnerships within this critical region.
image source from：atlanticcouncil
