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  • Writer's pictureMilo Hsieh

Analysis: Proposed Defund China’s Allies Act

Updated: Oct 16, 2023

Key Takeaways:

  • The Defund China’s Allies Act aims to prohibit U.S. taxpayer funding of the CCP.

  • 21 countries aligned with the PRC will be directly affected by reduced foreign aid.

  • International businesses face increased supply chain risks if there us reduced trade and funding between the U.S. and these 21 nations.

The “Defund China’s Allies Act” is a bill introduced by Republican representatives Andy Ogles in United States in which it prohibits taxpayers dollars from funding the Chinese Communist Party either directly or indirectly. The "Defund China's Allies Act” was presented in the U.S. Senate with the aim of prohibiting assistance to the 21 countries that partner with the CCP, with a focus on Latin American and Caribbean. Countries included are Honduras, Nicaragua, Dominica, Antigua and Barbuda, Grenada, Cuba, the Bahamas, Barbados, Jamaica, Trinidad and Tobago, Panama, Costa Rica, the Dominican Republic, El Salvador, Uruguay, Bolivia, Guyana, Suriname, Venezuela, Solomon Islands, and Kiribati. These countries are stated to have pledged alliance with the CCP, which aids in the expansion of China’s military, economic, and diplomatic power, undermining the relationships with the United States and these countries. Thus, American legislators perceive the need to extend legal action in order to protect national security.

According to the data associated with foreign assistance provided by the United States, approximately US$800 million was allocated in the fiscal year 2021 to foster relations with these 21 nations. The PRC’s diplomatic, military, and economic campaign to win over these countries has been affecting the utility of U.S. foreign aid and threatens to undo diplomatic progress. In accordance with the bill’s prohibition, foreign funds and humanitarian or security assistance shall not be made to these countries, which effectively puts these countries in the position to choose sides. One immediate benefit would be to prevent and disincentivize countries from “double-dipping” by accepting aid from both China and the United States, a common problem during the Cold War for the United States and the Soviet Union in their pursuit to win ideological allies.

It is noted that the bill’s primary motivation is to curb China’s efforts to hijack the global market and international rules. The CCP has also leveraged aid to countries to persuade them to switch diplomatic recognition from Taiwan to the PRC, effectively isolating Taiwan internationally. This bill will affect Taiwan’s international support by showing countries that there is a cost to siding with China in the Cross-Strait Conflict. In an ideal scenario for lawmakers, all countries, not just the 21 of primary concern, will weigh the high cost of losing U.S. aid with the benefits that Beijing has to offer if they choose to cut ties with Taiwan officially or unofficially.

The U.S.-China Competition and Introduction of Bill to Protect Taiwan

The "Defund China's Allies Act" is part of the larger context of the U.S.-China rivalry, which has intensified in recent years. There is mounting concern about China's growing global influence, particularly in the realm of U.S.-China technology competition. One of the big concerns in the U.S.-China tech competition is sanction-evading by U.S. partners and allies that bypass U.S. Department of Commerce rules on trading critical technology with China. Consequently, these nations will become ineligible for federal support, foreign aid from the United States, and potentially face trade sanctions themselves. Through the discontinuation of support to these countries, the U.S. can limit liability to its national security by limiting China’s access to critical military technology and its ability to project power over junior partners.

Further, section 2 of the bill mentions that the United States must support diplomatic relations with Taiwan, highlighting its relationship with the ROC by prohibiting foreign assistance to countries that switch formal diplomatic recognition from Taiwan to China. The view of many in Washington is that the primary reason nations choose to switch recognition is because of monetary gain, rather than from their own choosing. Therefore, this piece of legislation is an indication of progress in the U.S.-Taiwan unofficial bilateral relationship by supporting Taiwan’s participation in the global community. Furthermore, the proposed legislation's findings section highlights that it serves as an incentive to deter the CCP's continuing efforts to intimidate and isolate Taiwan internally.

The bill presents an opportunity for Taiwan to receive support from the United States amidst pressure from China. This bill is also part of the larger context of U.S.-China competition to safeguard U.S. national security. Moreover, this bill is a result of long-standing tensions between the United States and China over the CCP’s years-long aggression over Taiwan, and will have long-term diplomatic, economic, and military consequences for Beijing.

Assessing the Potential Impact of the “Defund China Allies Act”

The bill's potential implications present a challenge to the United States, as its enforcement will prove to be a challenge due to its involvement with multiple countries, especially amid allegations of U.S. spying on allies via leaked documents. Concerns of U.S. overreach, spying, and economic coercion will make even the closest of U.S. allies hesitant to support the bill and reduce the chance that they would enforce their own restrictions on sanctioned entities.

While the bill may not have a considerable impact on nations that are not specifically targeted, it is possible that it could create limitations in diplomatic relations with all countries that do business with the United States. The main challenge of this bill is that its logic is too simplistic and it ignores the priorities and desires of other nations.

Nonetheless, Taiwan stands to be the biggest beneficiary from the bill as it would pigeonholed countries into either clearly supporting Taiwan or siding with the PRC. This bill also signals the strength of pro-Taiwan factions within the U.S. government, giving Taiwanese reassurance in its relationship with the United States. However, it is worth noting that Taiwan may also face retaliation from the PRC, which seeks to punish Taiwan for increasing its ties with the United States.


International businesses should pay attention to the Defund China’s Allies Act as there are both primary and secondary trade considerations. The primary effect would be an acute change in trade relations between the United States and the 21 countries named in the bill. These countries certainly face reduced foreign aid from the United States, but it is not clear that Beijing is willing to pick up the tab to compensate for this loss. U.S. legislators may extend the bill’s mandate to go as far as sanctioning these nations for their support of the CCP. If Beijing is not willing to make up for lost U.S. foreign aid and there is reduced trade volume with the United States and other markets, these countries risk internal political stability due to a worsening economy and security position.

Secondary effects entail how U.S. allies react to the bill’s passage. Generally, U.S. allies wait for the United States to take the lead on confronting larger powers such as China and Russia. In the most generous scenario, U.S. allies will also reduce foreign aid to these 21 countries and demote their diplomatic relationships. In the worst-case scenario for Washington, allies will continue business as usual, leaving the United States in a worse diplomatic position than before.

Businesses should take a critical look at their international supply chain and identify the risk profile of each country, particularly the 21 nations targeted by this bill. Of those 21 nations, those with the most fragile political system and economy present the highest risk of supply chain disruption. Selling products or sourcing components from these most at risk countries will become a liability for international companies in the next 1-3 years.

Safe Spaces recommends international companies to review their supply chains and develop comprehensive business strategies that address these risks early as to give the company enough time to expand into more stable markets and source from low-risk countries.


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