From yesterday's edition of The New York Times:

China's economic might has rolled up to America’s doorstep in the Caribbean, with a flurry of loans from state banks, investments by companies and outright gifts from the government in the form of new stadiums, roads, official buildings, ports and resorts in a region where the United States has long been a prime benefactor.
The Chinese have flexed their economic prowess in nearly every corner of the world. But planting a flag so close to the United States has generated intense vetting — and some raised eyebrows — among diplomats, economists and investors.

China's growing use of its rising economic clout should come as no surprise. Rising powers have growing interests around the world. In order to sustain or advance those interests, nations can use soft power, hard power, or both. Hard power, of course, can be much costlier if it goes beyond alliances, as substantial resources and manpower can be required. Even alliances can be costly in the long-term, if such alliances threaten the balance of power and, in turn, draw opposition via arms races or even conflict.

Soft power (foreign aid and diplomacy) can be less expensive and arguably more effective in many cases. Soft power in an investment in the future. It yields returns in the form of relationships. Given the increasing lethality of modern military technology, soft powr is probably as important as it has ever been. On the flip side, the persistent political argument against soft power (neo-isolationism) is probably less relevant than it has ever been.

In China's case, the growing use of soft power is highly prudent. First, such power is less threatening than if China were seeking military bases or military alliances. Second, China can gain leverage in international institutions e.g., the UN, from those who benefit from its assistance. Those relationships could make it more difficult for other nations to use the UN to press China on domestic issues. Third, it can develop and deepen relationships that could be critical to securing attractive trade arrangements e.g., those that might help guarantee its access to the raw materials it needs to sustain its ongoing economic development.

Such an outcome has implications for the U.S., even if no threat is ever intended or pursued. The reality is that as countries have more options available for assistance, they can leverage that greater number of alternatives into more favorable terms going forward. Such an outcome erodes the bargaining power of the status quo powers--and the U.S. is a longstanding or status quo power--that previously enjoyed enormous leverage due to a lack of viable alternatives. The lack of alternatives stemmed from concentrations of economic clout and onerous terms insisted upon by possible alternatives (e.g., political terms demanded by Moscow during the Cold War).

Ironically, the erosion in bargaining power makes skillful diplomacy even more important, because ad hoc coalitions become more costly to build. In turn, this makes hard power less viable, because fewer potential partners are available. A comprehensive assessment of the balance of power reflects such a situation. In the medium-term and beyond, this trend toward declining relative influence (not a decline in absolute influence, but an outcome of less influence relative to the rest of the world) when it comes to foreign policy and foreign aid will pose some challenges to the U.S., even as the U.S. faces temptations to further slash its small foreign aid budget.

Currently, the U.S. is confronted by a growing need for fiscal austerity, though much of Washington still has not awakened to the need for concrete effort in that direction. Promises of fiscal responsibility still do not match concrete acts. Unfortunately, policy makers have often targeted foreign aid in a short-sighted approach for quick budgetary savings that ignores the high value-added given global U.S. interests. That short-sighted approach also ignores the almost microscopic share of the budget that is directed toward foreign aid.

Foreign aid has never been the reason the U.S. is confronted by long-term fiscal challenges. Foreign aid is an investment in the sustaining and strengthening the nation's overseas interests by augmenting its diplomatic efforts and maintaining its influence. Slashing foreign aid will only generate large negative returns on the nation's overseas interests in the long-term while doing almost nothing to address the nation's fiscal challenges.

Nevertheless, it remains unlikely that the U.S. will use this latest development to begin to develop a long-term foreign policy strategy that it increasingly urgently needs. Such a strategy has to realistically balance its resources (present and future), application of power (soft and hard), with the importance of its interests. Priority should be given to safeguarding and strengthening its vital and critical interests. Interventions where no such interests are involved should be avoided. They only consume resources and provide few benefits to the U.S. Libya was one such case. Today, the U.S.-Libya relationship is not materially different from the late years of the Gadhafi dictatorship, the country is more unstable (leaving it more exposed to radical elements), and the new government in Libya also rejected U.S. efforts to bring the Lockerbie bomber to justice. If it were not for an adverse UN Security Council vote on Syria, Syria might have been another case.