The State Department’s China Shortfall Revealed

A State Department report requested by members of Congress and obtained by Foreign Policy has revealed a significant shortfall in funding to counter China in the Indo-Pacific. 

The Biden administration says matching China’s growing diplomatic and military muscle in the Indo-Pacific is one of its top priorities. Yet according to State Department budget documents, there is a $41.3 billion gap between what the Biden administration has given the State Department and the U.S. Agency for International Development (USAID) and what those departments anticipate needing to carry out that mission over the next five years.

“The Department’s and USAID’s capacity to achieve its goals in the Indo-Pacific is dependent on our personnel, facilities, and operational posture,” said the report, which was sent to Congress in July. “Driving resources to the Indo-Pacific will be critical to our success in the region and in our strategic competition with the PRC,” the report added, using a widely utilized U.S. government acronym for the People’s Republic of China. 

“U.S. foreign assistance spending for the Indo-Pacific has long been way short of where it needs to be and grossly out of proportion to the region’s strategic importance,” said David Feith, a former deputy assistant secretary of state for East Asian and Pacific Affairs during the Trump administration. “The diplomatic footprint hasn’t been what it’s needed to be. The foreign assistance spending hasn’t been what it has needed to be. … They also haven’t spent in all of the right ways.”

The priorities put forward by the agencies include driving $10 billion in U.S. military aid to Taiwan over the next five years to steel the island against the threat of a Chinese assault, expanded assistance to the Pacific Island nations where Beijing has made significant diplomatic inroads over the past year, and building up American embassies and outposts in Maldives, Solomon Islands, Tonga, Fiji, Vanuatu, and Kiribati.

“A lack of a U.S. presence in Maldives and multiple Pacific Island nations undercuts U.S. efforts to engage as an indispensable partner during a time of heightened strategic competition,” the report said.

The State Department also views Bali and Makassar, Indonesia; Cebu, Philippines; Nouméa on the French-held island of New Caledonia; and Christchurch, New Zealand, as potential candidates for new diplomatic posts if the agency gets a budget boost. State also hopes to add consulates in Bengaluru and Ahmedabad, both among the five largest cities in India. 

The request for funding, which Congress asked for last year, includes $2 billion in yearly U.S. military aid to Taiwan to build up its air and missile defenses and coastal protection against a Chinese attack. The State Department also wants to give countries in Asia $170 million to beef up their cyberdefenses, as well as $100 million to add intelligence assets in maritime hotspots like the South China Sea. 

The agencies also want to inject nearly $4 billion into strategic infrastructure in developing countries in Asia to offset a trillion-dollar-plus annual gap in infrastructure investment and to give poorer nations an American alternative to China’s Belt and Road Initiative that has saddled countries in South and East Asia with billions of dollars in debt to Beijing. The United States is also looking to up the Indo-Pacific economic crisis fund with nearly $500 million in the next five years to prevent countries from defaulting on Chinese debt. 

It would also direct more than $150 million to a joint hydropower project between India, Nepal, and Bangladesh, part of almost $900 million in clean energy projects. The State Department also wants $7 billion for the so-called Compacts of Free Association, U.S. treaties with three Western Pacific islands that compensate them for early Cold War nuclear tests, provide billions in American economic assistance to the region, and allow citizens to live and work in the United States in exchange for U.S. military access.

A State Department spokesperson said the report “does not identify a shortfall” but is instead a five-year cost assessment of U.S. objectives in the Indo-Pacific. The spokesperson stressed that the report and figures are a cost estimate, not a budget request.

“Both the [Indo-Pacific Engagement Act] report and the FY 2024 President’s Budget Request reflect the administration’s position that significant additional resources are needed to support the Indo-Pacific Strategy and our strategic competition with the PRC,” the spokesperson said.

But the wish list represents many line items that the Biden administration isn’t funding. Both Democrats and Republicans in Congress have admonished State Department officials for not doing enough to counter China in the Indo-Pacific region as China’s growing presence in Africa and Latin America has competed for the attention of diplomats. 

“We’re still woefully underperforming in the Indo-Pacific, and we’re not competing with the PRC from a position of strength,” Rep. Young Kim, a California Republican, told top State Department and USAID officials at a hearing on July 18.

A core focus of her criticism was on the State Department’s Bureau of East Asian and Pacific Affairs (EAP), a regional bureau that now wields outsized influence in U.S. foreign-policy machinations given Washington’s new fixation on competing with China.

“East Asia and the Pacific Islands are on the front lines of our competition with China, and yet EAP remains a small fraction of the State Department’s overall budget and programming,” she said. 

And Ami Bera, a California Democrat and the ranking member on the House Foreign Affairs panel on the Indo-Pacific, echoed the same line of attack. 

“The [Indo-Pacific] region has remained under-resourced when considering its geostrategic importance, economic heft, and staggering population,” he said. “If the U.S. is going to outcompete Beijing in the Indo-Pacific, we cannot cut resources from key national security agencies.”

Behind closed doors, top State Department officials have told lawmakers and aides that the East Asia bureau has been outgunned by the needs of other regions in the race to get funding to counter China. That Congress asked for the submission is a sign that it’s pushing the State Department’s Asia branch to get more active in budget fights. Such direct lobbying is standard operating procedure for the U.S. military’s geographic combatant commands. 

Congressional aides and former officials expressed concern that the Biden administration isn’t going to put up the money to match its tough talk on China.

“If we continue funding at the same levels now, we will never get there,” said one congressional aide, speaking on condition of anonymity to talk candidly about behind-the-scenes budget negotiations. The congressional aide said that a shortage of career diplomats and civil servants within EAP dating back to the Obama administration has given the office less heft in budget negotiations, especially as China’s global reach has given the State Department’s other regional bureaus the ability to ask for funding to counter Beijing’s military and diplomatic presence. 

Though the State Department’s East Asia and Pacific and South and Central Asian Affairs bureaus have seen increases from the money that Congress has enacted—part of a State Department budget that got a nearly $4 billion global bump last year—lawmakers and aides are worried that given the scope of the U.S. diplomatic competition with China, both are two of the most underfunded offices within the State Department. 

The State Department’s Asia branch has been underfunded for decades. Feith said that during the Trump administration, U.S. officials and diplomats did a counting exercise that showed that only between 8 percent and 10 percent of total American foreign aid was going to the Indo-Pacific region. 

In 2020, the State Department told the Senate Foreign Relations Committee that about 4 percent to 5 percent of its foreign aid budget was being spent in the Indo-Pacific, Feith said. 

“You’re talking about single digits, and this was already when we were supposed to be almost a decade into a pivot to Asia,” he said. “It was just woefully inadequate.”

There are headwinds on Capitol Hill that make progress difficult. Even with the House China select committee holding hearings on prime-time television, the State Department’s beefed-up Asia wish list might not even come true for another year. Under the debt ceiling deal between the Biden administration and congressional Republicans in May, Congress agreed to fund U.S. priorities in the Indo-Pacific but proposed a more than 30 percent cut to the State Department and USAID budgets. 

“You can’t really compete with the number of boots on the ground that China has,” said Bonnie Glick, a former deputy administrator of USAID during the Trump administration. “Their population is enormous. So they have an ability to have representation everywhere.”

Even if the agency gets the diplomatic heft it’s asking for, former officials aren’t expecting the State Department to go punch for punch with Chinese officials in their backyard.

“It’s these little steps that we’ve taken that are significant,” Glick said. “But China takes big steps. That’s the difference.”

Update, July 27, 2023: This piece has been updated to provide a response from the State Department.