The Second Trump Administration Can Build on an Important, But Little-Known, Legacy to Pursue Key Foreign Policy Objectives Quietly and Effectively

As expressed in the U.S. Department of State’s mission statement, America’s foreign policy objectives are broad: to “promote U.S. security, prosperity, and democratic values and shape an international environment in which Americans thrive.” President-elect Donald Trump’s “Peace Through Strength,” based in part on the legacy of Ronald Reagan, spells out these ideas in more detail. And Senator Marco Rubio, Trump’s nominee to head the State Department, will likely pursue them in conjunction with the heads of several other departments and agencies, including Defense, Treasury, Agriculture, Commerce, and even Housing and Urban Development. Collectively, the administration will have to deal with pressing issues such as the conflicts in Ukraine and the Middle East; China’s growing influence—especially in trade and technology, as seen in its “military fusion” policies (close integration of the military and business)—and multiple international concerns related to illegal immigration, drugs, crime, and cybersecurity.  

However, a Trump legacy unit—largely ignored in the headline discussions—the Development Finance Corporation (DFC), created in 2018 and overseen by the U.S. Department of State, offers promise for a quieter but important stream of programs to address underlying trends that carry massive threats to the U.S. foreign policy mission.  

Twin phenomena: the growth of high levels of NEET (not in employment, education, or training) youth and rapid urbanization, with its incumbent challenges (a lack of jobs, housing, and infrastructure; a proliferation of informal settlements or slums; and associated health issues), create combustible conditions that can fuel widespread political and social instability everywhere, but especially in the Global South, primarily in Africa, South Asia, and the Middle East. Growing discontent with unaddressed urban problems can lead to protests that can topple national governments or contribute to the rise or increase of authoritarian regimes.  

Over the decades, youth have led this civil unrest—with their demonstrations taking place in public spaces in major cities. From Tiananmen Square in Beijing (1989) to Tahrir Square in Cairo (2011) to the Umbrella Revolution in Hong Kong (2014) to last fall’s violent protests in Nairobi and Lagos, they capture world attention. Recent changes in the pattern of protests—the introduction of social media, the spread beyond one city, the duration, and the increase in places dominated by autocratic or weak governments—call for U.S. foreign policy to include an urban dimension. 

This policy could support thoughtful preventative multilevel development programs that would center on critical urban and regional infrastructure—housing, water and sewer, local and regional transportation, and urban-rural synergies (food, water)—to fortify and stabilize target countries’ economies. These are all elements of a national urban policy that focuses on balanced territorial development (a topic widely discussed in Europe but applicable elsewhere), which considers the shared prosperity of all sizes of cities and their rural areas within regions defined by economic, geographic, and social characteristics. The DFC, with its local offices, could tailor its investments to national contexts, incorporating responsibilities at the appropriate governmental level. 

To date, the DFC receives funding from appropriations through the U.S. Department of Treasury and collections from its operations. Its spending cap (maximum contingent liability) of $60 billion is nearly absorbed by the $48 billion in investments currently in its book. Its investments have been in energy, critical minerals, food and health security, infrastructure, technology, and small- and medium-sized enterprises. The emphasis has been sectoral, absent a comprehensive framework as suggested above.  

Further, the DFC mandate restricts its work to low- and lower-middle-income countries (as designated by World Bank classifications based on gross national income indicators). The result is the disqualification of every country in the Latin American and the Caribbean region except Bolivia, Honduras, and Nicaragua. Elsewhere, strong allies like South Africa and Indonesia are ineligible. These rules prevent investments in places with high subnational economic disparities like Brazil, Mexico, and others that are of foreign policy interest to the United States.  

Finally, the DFC authorization expires in October 2025. A bipartisan reauthorization effort is underway. Suffice it to say, the Trump administration could take the coming months to fashion a 21st-century urban-inclusive approach for the DFC that would have an enormous payback in the future.

Why Should the DFC Focus on National Urban Policies?

Let’s look at conditions in the ten most populous countries in the world. Of them, six are in the Global South, where potentially explosive situations exist in the combination of NEET youth and rapid urbanization, yielding cities unequipped to accommodate basic human needs—especially those of youth with their proclivities to protest. See Table 1. 

In the six countries, NEET youth range from 16 percent to 34 percent of the total, while the level of urban population ranges from 36 percent to 87 percent.1 And of particular importance is the relationship between the high rates of urbanization (that compound every year) in such places as Nigeria (4 percent), Bangladesh (3 percent), Indonesia (2 percent), and Pakistan (2 percent); NEET youth; and the urban population in slums (ranging from 18 percent to 52 percent). Taken together, they create conditions where discontent flourishes. These data are the tip of the iceberg regarding the needs for development finance in the Global South. Some 2.5 billion people will come into city life in the next three decades. Three-quarters of the necessary infrastructure for them will need to be built. 

Table 1. Combustible Conditions in Six of the Ten Most Populous Countries

Sources: U.S. Census, U.N. Habitat, and World Population Review

What the DFC Does Now and Can Do in the Future

Today, the DFC serves many purposes: the consolidation, modernization, and amplification of the U.S. development finance work; the U.S. contribution to the G20’s Partnership for Global Infrastructure, designed to counter to China’s Belt and Road Initiative;2 and a vehicle to attract much needed private investment in emerging and developing economies. Governed by a nine-member board chaired by the secretary of state, it provides loans, equity, loan guarantees, political risk insurance, and technical assistance.  

In channeling foreign direct investment to selected developing countries, the DFC complements America’s overseas development assistance to advance global development, strengthen democracy, reduce poverty, and support national security goals and taxpayer interests. While the placement of nearly $50 billion in well-functioning investments marks its success in meeting its 2018 legislated mandate, it has even more potential with tweaks now incorporated in the proposed bipartisan reauthorization bill (H.R. 8926) submitted in early July 2024 by Republican U.S. Representative Michael McCaul of Texas and Democratic U.S. Representative Gregory Meeks of New York. Although a Senate bill does not exist yet, hearings and markups on H.R. 8926 have occurred through the Committee on Foreign Relations in preparation for the full House consideration in 2025.  

The proposed reauthorization has several positive features. It extends the DFC term to seven years, doubles DFC investment capacity to $120 billion, calculates the value of its equity products more favorably for investors, and, of importance to this article, amends the eligibility criteria to allow DFC to conduct business in middle-income countries—key for U.S. foreign policy.  

If approved, the broadened mandate provides the opportunity to undertake the urban-sensitive policies suggested above. In so doing, the DFC can address the dual challenges and promote the advantages of a large youth population and rapid urbanization. This will allow the transformative qualities of cities—large, dense populations and economic agglomeration—to flourish as engines of prosperity and political stability, thus helping meet the U.S. foreign policy mission quietly and effectively.