American Power, Half-Built

Tucked into the National Defense Authorization Act is the reauthorization of the U.S. International Development Finance Corporation (DFC), an agency that sits at the intersection of development, foreign policy, and industrial competition. On paper, the reauthorization signals ambition. It expands the DFC’s balance sheet and broadens where it can operate, reflecting rare bipartisan agreement that development finance is a core instrument of American power.

What the statute does not resolve is whether the United States is prepared to use that instrument effectively.

Strategic competition today is increasingly waged through finance—decisions about which infrastructure gets built, which technologies scale, and which firms and standards shape global markets. In that contest, speed, scale, and institutional confidence matter as much as formal authority. The DFC was created to compete in precisely this space. Whether its reauthorization equips it to do this—or entrenches a model that favors caution over action—is less clear.

The China Challenge

Development finance is neither traditional foreign aid nor purely commercial investment. It uses public financial tools—loans, guarantees, equity, and insurance—to mobilize private capital in markets where political risk, weak institutions, or long time horizons deter investment. Development finance aims to help countries build infrastructure, expand productive capacity, and integrate into global supply chains—while simultaneously advancing the strategic interests of the sponsoring state.

Congress created the DFC in 2018 in response to China’s growing use of state-backed finance as a geopolitical and industrial tool. By that point, Beijing was financing ports, power plants, rail lines, data networks, and mines across much of the world—often faster and on terms Western institutions were unwilling or unable to match. For many governments, China’s model proved attractive precisely because it moved quickly, with few due diligence requirements, and often bundled capital with construction. These investments also tied countries into Chinese technology, entrenched Chinese firms, and embedded long-term dependencies into the physical and digital infrastructure of a country’s growth.

China’s model carries well-documented risks. Research has linked a substantial share of Beijing-financed projects to corruption, labor abuses, environmental damage, and debt distress. Yet these liabilities coexist with an uncomfortable reality for Washington: In many contexts, Chinese finance is the only option able to move at the speed and scale required to meet infrastructure needs.

Through the DFC, Congress sought to offer countries a credible alternative—one that was principled but also competitive.

The DFC’s Early Record and Enduring Challenges

Since becoming operational in 2019, the DFC has established itself as a consequential tool of American power. Its portfolio has grown rapidly, reaching nearly $49 billion. The agency now operates in over 100 countries and has established a modest overseas footprint across Africa, the Indo-Pacific, and Latin America. It has supported critical minerals projects, solar manufacturing using U.S. technologies, and vaccine production abroad. For a relatively young institution with just over 500 staff, these gains are impressive.

Yet since its inception, the DFC has struggled to resolve a more fundamental question: What, precisely, is its core identity and purpose? The agency has a dual mandate—to advance both development and foreign policy—but the balance of those two goals is contested in execution. Development advocates have emphasized poverty reduction and development impact. China hawks have pressed for investments that prioritize geopolitical objectives. Subsequently, each administration has reinterpreted the agency’s purpose, producing strategic drift rather than cumulative direction.

That ambiguity is reinforced by an operating model designed to minimize error rather than to compete effectively. The DFC is subject to multiple, and oftentimes redundant, layers of internal review, interagency consultation, and congressional reporting. These safeguards help ensure accountability, high standards, and the responsible oversight of taxpayer dollars. But in practice, they bias the institution toward minimizing failure rather than maximizing impact. The result is an agency unable to move quickly or absorb calculated risk, even in sectors where timing determines long-term outcomes.

The reauthorization attempts to address some of these challenges, particularly around scale and strategic focus. Yet by adding new procedural handcuffs, the legislation also reflects congressional anxiety about executive discretion—unease that reinforces the very patterns of risk avoidance and slow decision-making that have limited the DFC’s effectiveness.

The Reauthorization’s Advances

The reauthorization’s most consequential change to the DFC is to the agency’s scale. Congress raised the DFC’s maximum contingent liability, or portfolio investment cap, from $60 billion to $205 billion, bringing the agency’s balance sheet closer to its strategic ambitions. This expansion recognizes that competition with China depends on scale: The DFC must be able to shape markets and support sustained private investment over time.

The legislation also broadens the DFC’s geographic scope by authorizing investment in high-income countries. This change reflects a bipartisan recognition that the World Bank’s income classifications, based on per-capita gross national income, are poorly suited to contemporary realities. Some projects critical to supply chains, energy transition, and digital and transportation infrastructure may be located in countries deemed “high income” but that nonetheless fail to attract private capital on purely commercial terms. Allowing the DFC to operate in these contexts brings its authority closer to strategic needs.

In addition, the legislation elevates the agency’s strategic focus. It establishes a chief strategic officer, who will sit alongside the existing chief development officer, to advise on national security and foreign policy matters. It includes a “Sense of Congress” encouraging the agency to prioritize critical minerals and telecommunications infrastructure. It authorizes additional positions for specialized expertise and requires a five-year strategic priorities plan.

These changes demonstrate real congressional interest in making the DFC a more ambitious and impactful player, particularly in strategic sectors. However, other changes underscore a persistent reluctance to trust the institution to exercise that ambition with flexibility and speed.

What the Reauthorization Leaves Unresolved

This reluctance is most evident in the legislation’s treatment of high-income country investments. Congress authorizes the DFC to operate in high-income countries, but only following a dense thicket of advanced reporting, certifications, and notifications. Each year, the agency must submit a report identifying the high-income countries it anticipates supporting and the types of projects it expects to finance. If a project falls outside of that report, the DFC must submit an additional notification explaining how it advances U.S. foreign policy. The DFC must further certify that each project in a high-income country is the preferred alternative to foreign adversaries or furthers U.S. strategic interests, among other requirements. Transactions exceeding $20 million trigger yet another congressional notification. None of these requirements operate in isolation. Each entails weeks, often months, of internal coordination and clearance before a notification, certification, or report can proceed to Congress for review.

In theory, this sequencing preserves congressional oversight while enabling investments in more of the world. In practice, it risks rendering the new authority marginally useful. Companies seeking DFC support already face uncertainty associated with prolonged reviews and open-ended congressional scrutiny, even for modest projects. The manifold procedural layers introduced by the reauthorization will likely deepen that hesitation. As one senior congressional staffer told Devex, “[W]e will need to scrutinize every single investment the DFC makes under this administration, especially in high-income countries.” That impulse for control is politically satisfying in the short term. Over the DFC’s seven-year reauthorization period, however, it may erode the agency’s strategic ambition and undercut the rationale for extending the authority in the first place.

The creation of new advisory councils reinforces this pattern. The legislation establishes both a development finance advisory council and a congressional strategic advisory group, each requiring periodic consultation. The latter—composed of a subset of members of the House and Senate foreign affairs committees—functionally duplicates Congress’s existing powers to request briefings, convene hearings, and legislate. What it adds instead is time and process. Its creation reflects institutional mistrust—an effort to legislate consultation following the marked decline in the Trump administration’s engagement with Congress. But legislating new advisory processes does not repair the damaged norms around the separation of powers. In some sense, it codifies that dysfunction.

The modest changes to congressional notification thresholds illustrate the same mismatch between ambition and execution. Congress raised the dollar amount that triggers congressional notification from $10 million to $20 million—a meaningful but limited adjustment that still captures a substantial share of the DFC’s portfolio. Meanwhile, speed remains China’s enduring advantage. Research shows that Chinese government-financed infrastructure projects on average reach completion in less than three years, compared to five to 10 years for similar projects financed by the World Bank and regional development banks. That differential creates powerful first-mover advantages and aligns with the political incentives of governing elites facing short electoral cycles. Officials across the developing world have repeatedly cited speed and certainty as central reasons for choosing Beijing over slower-moving alternatives. The reauthorization does not address this fundamental challenge. It may, in fact, make the problem worse.

The treatment of equity illustrates similar tensions. The law creates a $5 billion revolving equity fund, which appropriators would need to capitalize over several years, allowing the DFC to recycle returns on successful investments over time rather than returning them to the Treasury. Equity authority matters because it allows the agency to take ownership stakes in companies or projects, shaping early-stage markets, supporting technology deployment, and participating in growth when projects succeed. Yet budget scoring rules treat equity investments as total losses, rather than their expected cost to the government over the life of the investment. For instance, a $10 million equity investment that yields $20 million five years later must still be recorded as a $10 million loss. The revolving fund may expand the pool of capital available for equity investments over the long term, but it does not correct this underlying distortion. As a result, one of the DFC’s most valuable tools remains artificially constrained.

Political risk insurance presents a parallel case. One of the DFC’s most effective instruments for mobilizing private capital in difficult environments, political risk insurance continues to be hampered by budgetary interpretations that inflate its apparent cost to taxpayers. Congress chose not to address this issue, despite substantial historical evidence that political risk insurance has generated net returns rather than losses. Ultimately, this leaves one of the DFC’s most important tools far short of its potential.

The reauthorization also avoids the question of government-to-government, or sovereign, lending. The reauthorization requires the DFC to establish a clear policy governing investments involving state-owned enterprises, sovereign wealth funds, and other parastatal entities—an important measure given the authority’s limited use and confusion within the U.S. government. But Congress stopped short of authorizing direct sovereign lending. In many parts of the world, the state remains the principal economic actor, with public financing driving 80 percent of infrastructure investments. The limitation on sovereign lending creates a self-imposed strategic vulnerability, preventing the United States from matching the flexibility of partners like Japan and Australia, which routinely finance governments to secure their interests.

Finally, Congress declined to make the DFC permanent. Congress allowed the DFC’s authorization to lapse in October, failing to meet its own statutory deadline, and signaling the fragility of an institution meant to finance long-term projects. China’s policy banks are permanent. So are peer institutions in Japan, Korea, Canada, and the United Kingdom. Their permanence strengthens their credibility with both partner governments and the private sector. The DFC’s impermanence creates uncertainty about whether the institution will exist over the long term or whether political winds might eliminate it entirely. That uncertainty undermines the agency’s competitive position.

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The DFC’s early years have demonstrated real promise, and its reauthorization reflects bipartisan enthusiasm for expanding its role. But the legislation also reveals how far Washington remains from treating development finance as a fully realized instrument of American power.

The gap between aspiration and execution runs throughout the statute. Guardrails driven by short-term political concerns have narrowed the utility of new authorities. Two of the agency’s most catalytic tools—equity and political risk insurance—remain handicapped by faulty budget rules. The prohibition on sovereign lending leaves the DFC limited in strategic sectors where public borrowing is standard. And the DFC’s temporary status continues to undermine confidence in investors and partners.

The reauthorization is a step forward, but it falls short of the destination. America’s success in shaping critical infrastructure, technologies, and supply chains hinges on whether our public institutions are built for competition rather than caution. Achieving this will require removing redundant controls, tolerating calculated risk, and adopting a longer view of American power—one that extends beyond the cycles of short-term politics.