Trump aid cut leaves Nepal power plan in limbo, a window China was looking for

Nepal’s ambitious project to enhance its power grid and roads, bolstered by a $500 million grant from the United States, is now in jeopardy following the suspension of foreign aid under the Trump administration, the New York Times has reported. The project, which had already faced challenges due to Nepal’s balancing act between China and the US, has left the country in a precarious position.

Nepal had agreed to accept the US funding in 2022, following years of divisive debate, despite strong opposition within the country. Now, as US foreign aid is halted for at least 90 days, Nepal’s future plans are clouded by uncertainty.

The original US offer, intended to bolster Nepal’s electricity grid by building a 200-mile transmission line to link it with India, promised significant infrastructure upgrades. With an average income of about $1,400 annually, the $500 million represented a significant investment for Nepal. However, this grant came with geopolitical undercurrents, particularly in Nepal’s delicate relationship with China.

China, which shares a border with Nepal, has long been a key economic partner for the Himalayan nation and would undoubtedly seize any opening left by the suspension of US aid.

Doubts grow over Nepal’s geopolitical alignment

Rajendra Bajgain, a lawmaker from Nepal’s governing Nepali Congress party, voiced his frustration with the recent developments. “This is quite shocking,” Bajgain told NYT, reflecting the concerns of those who had supported the agreement with the US.

Bajgain saw the Nepal-US agreement as a means of securing much-needed infrastructure funding despite critics mocking supporters of the deal as “US puppets”. Now, as the Trump administration halts its aid, Nepal faces a prospect of giving China an opportunity to expand its influence in the country.

It is, however, not yet clear whether China has directly approached Nepal following the US aid freeze, the situation has undoubtedly presented an opening for Beijing. “They are making it easier for our neighbouring countries, especially the Chinese, who are enjoying themselves,” Bajgain warned.

Ironically, Nepal had resisted Chinese influence to accept the US grant. But Nepal may now have to face the repercussions of shifting US policy under the Trump administration as it gets increasingly embroiled in a growing friction with Washington DC’s international partners.

Potential consequences for Nepal’s energy and road development

The suspension of the US grant could lead to significant setbacks for Nepal’s infrastructure development, particularly the vital power transmission line. The $500 million grant was designed not only to modernise the country’s electricity grid but also to support crucial road maintenance projects across Nepal’s difficult terrain.

Without these funds, Nepal risks the possibility of failing to meet its commitments to India regarding electricity transmission. Large hydropower projects critical to Nepal’s long-term energy strategy will be at risk if the transmission line cannot be completed.

Concerns have also been raised about several unfinished projects that could undermine Nepal’s energy sector, with serious long-term consequences for its economy. If the aid freeze continues, Nepal could also incur liabilities, particularly if it is forced to cancel contracts with international partners.

The geopolitical tug-of-war: US versus China in Nepal
The challenge of balancing US and Chinese interests has long been a delicate matter for Nepal, and the suspension of US aid further complicates this. While the US saw the infrastructure grant as an opportunity to counter Chinese influence in South Asia, Nepal’s communist-leaning government has ties to China that have remained strong.

Critics of the US grant had long warned that accepting such assistance would compromise Nepal’s sovereignty, echoing concerns stoked by Beijing during the debate. “Is it a gift or Pandora’s box,” asked Hua Chunying, a Chinese foreign ministry spokesperson, reflecting the scepticism that accompanied Nepal’s decision to engage with the US.

Supporters of the grant had vigorously defended the agreement, emphasising that the US funding came without the burden of Chinese-style loans, which often require the use of Chinese contractors, potentially straining a nation’s finances.

Despite these assurances, Nepal has since encountered difficulties with Chinese loans, including a problematic $200 million loan for an international airport project, which now faces financial challenges due to low passenger traffic.

As Nepal grapples with the consequences of the Trump administration’s foreign aid cuts, it tries to find a difficult balance between the US and China amid a fast-changing global order. Many around the world will be keenly watching whether Trump’s aid cuts would force Nepal back into China’s embrace, or will it be able to find a way to chart out a new diplomatic wayout.