WASHINGTON — The Trump administration is mulling plans to kill U.S. subsidies for foreign allies to buy American-made weapons outright and replace them with a loans program.
The proposal is a bullet point in White House budget director Mick Mulvaney's controversial plans to slash funding for diplomacy and development, first reported by The Washington Post and confirmed to Defense News by multiple sources. The idea is to replace all foreign military financing, or FMF, grants with loans, save for the security aid committed to Israel — which makes up more than half of the $5.7 billion program.
While it has uncertain prospects in Congress, it has frustrated key U.S. lawmakers, who say such a move would trash both a critical national security tool and a buttress for the domestic defense industry — just as President Donald Trump says U.S. jobs are his top priority.
Sen. Lindsey Graham, chairman of the Senate Appropriations Subcommittee on State and Foreign Operations, earlier this month said deep State Department cuts are "dead on arrival" in Congress. On Thursday, he defended FMF.
"Sometimes we have to subsidize the allies' purchases, but they buy American equipment and they do pay," Graham, R-S.C., said of the FMF program. "You have to show me where a loan is better for our national security. … This part of the [federal] budget is a percent of a percent."
A key argument for FMF is that if America ends arms subsidies, it lets strategic allies get weaker and cedes business and influence to Russia and China — its largest rivals strategically and for global defense markets.
"The last thing I want allies to do is go to the Russians and the Chinese because we are penny-wise and pound-foolish," Graham said.
The Senate Foreign Relations Committee's ranking member, Sen. Ben Cardin, D-Md., said he would strongly oppose the change, which "would have serious consequences for U.S. foreign and defense policy" and "potentially kill the program." Because subsidies further U.S. relationships and leverage with recipient countries, "if anything [the program] should be expanded, not undermined," Cardin said in a statement.
Cardin drew a link between the FMF proposal and Trump's past suggestions that foreign military aid is a bad deal for the U.S., saying the president "does not appear to appreciate that these sales and the FMF program are in America's foreign policy and national security interest, not as a favor to these countries."
"Given this proposal and the rumored huge cuts to the U.S. foreign assistance budget, the president seems determined to empty America's national security toolbox, leaving only the hammer of military force," Cardin said. "I'm particularly concerned that this move would result in lost U.S. jobs, particularly in Maryland."
Of the $5.7 billion request for FMF for 2017, $3.1 billion was for Israel, $1.3 billion for Egypt, $350 million for Jordan, $265 million for Pakistan and $150 million for Iraq, those five countries being the top funded. With the exception of certain assistance allocated to Israel, the money was used exclusively to procure U.S. military equipment and associated training.
One key recipient, Jordan, has received U.S. military aid for 60 years — about $774.6 million since 2014. Because it's wedged between Israel, Syria, Iraq and Saudi Arabia, Jordan is vulnerable to the strategic designs of more powerful neighbors, but it's also a buffer between these countries in their largely adversarial relations with one another. Today, it is a key U.S. ally on the front lines of the fight against the Islamic State group.
FMF alone has enabled the Royal Jordanian Air Force to maintain a modest fleet of Lockheed Martin F-16 fighter jets and purchase Raytheon-made Advanced Medium Range Air-to-Air Missiles and Sikorsky-made Black Hawk helicopters for border monitoring and counterterror missions, according to the Congressional Research Service.
When top Central and Eastern European diplomats came to Capitol Hill on March 7, they urged lawmakers to support U.S. soft power efforts — and FMF — as a counterweight to the alleged Russian influence campaigns targeting their citizens.
Georgia's ambassador to the U.S., David Bakradze, said U.S. aid, in place since his country declared its independence from the Soviet Union, has been essential to its survival. FMF is "supporting Georgia's resilience when it comes to the defense and security cooperation," he said.
Andrew Shapiro, an Obama administration chief of the U.S. State Department’s Bureau of Political-Military Affairs, which has policy authority over FMF, called the broader State Department cuts "ill-advised" and argued for preserving FMF.
If the U.S. were to pull the grants, not only would relationships with recipient countries suffer, but defense business might go to U.S. rivals, who offer less expensive alternatives. In Asia, where the U.S. uses FMF to promote maritime security for allies, China may step in, and Russia and others "may try to fill the gap" in the Middle East, Shapiro said.
"In effect, we are cutting money that would go to U.S. defense companies," Shapiro said of the proposed FMF change. "It helps maintain the U.S. defense-industrial base, it helps lower the cost for the U.S. to buy systems if there is a broader base of sales, and that impacts jobs and communities."
Foreign policy experts familiar with the FMF program say its beneficiaries are economically underdeveloped — and would neither be eligible for nor interested in loans.
It's unclear how the proposed loans program would work. Few details of the Office of Management and Budget's initial budget proposal and Secretary of State Rex Tillerson's formal appeal appeared in a memo obtained by The Washington Post.
The Office of Management and Budget did not respond to multiple requests for comment from Defense News.
The White House gave the State Department an initial budget proposal known as a "passback" that allots $34.6 billion for both the State Department and the U.S. Agency for International Development in fiscal 2018, according to The Washington Post. If enacted, that would be a 37 percent reduction from the fiscal 2017 level. The White House proposed $23.2 billion for foreign assistance, which is 38 percent below this year.
"Among the folks who follow this closely, there's deep concern about the broad range of cuts and State's ability to accomplish its mission," Shapiro said. "The State Department would be broadly weakened if those cuts were to take effect."
The White House may propose a budget, but Congress ultimately controls the purse strings. Asked to weigh in on the FMF part of the proposal, Senate Foreign Relations Committee Chairman Sen. Bob Corker, R-Tenn., was dismissive.
"I'm going to go over to the White House today to talk about budget issues," Corker said. "I think the only thing you should be concerned about is what we actually do."
Aaron Mehta contributed to this report.
Joe Gould is senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry.