As previously discussed here, Treasury Secretary Scott Bessent announced earlier this month that the United States will be opening a $20 billion currency swap line with Argentina. “Argentina is a systemically important U.S. ally in Latin America, and the [Treasury] stands ready to do what is needed within its mandate to support Argentina. All options for stabilization are on the table,” he wrote in a post on X (although he has since clarified that “we’re not putting money into Argentina,” which would rule out a direct purchase of Argentine bonds).

But is it wise for the U.S. to step in and try to inject liquidity into the shaky Argentine monetary system? Some critics have argued that it is a betrayal of the administration’s America First principles to bail out Argentina’s central bank—and its president, Javier Milei—by backing up its economy with American resources.

This fails to grasp the principal American interests involved in the case.

U.S. commitments across the globe have stretched our capacities thin, and Latin America—America’s back yard—has been largely neglected since the fall of the Soviet Union in 1991. The Trump administration is remedying this error, and has put a new emphasis on hemispheric security. Instability and foreign influence in the Americas has much more direct impacts on American domestic welfare and security than conflicts in the far-flung theaters of Europe and the Middle East. Additionally, the rise of China as a hostile power has provoked a serious need to reevaluate the United States’ economic posture. The country is in desperate need of retooling supply chains to avoid dependence on Chinese industry.

These developments require a much stronger U.S. presence in Latin America, which presents the most convenient place for nearshoring manufacturing and acquiring alternate supplies of strategic resource inputs like lithium, which Argentina has in abundance. But after a long absence from the arena, American influence operations in the region are at a stark disadvantage compared to the Chinese, who have poured investment and easy credit into the region—cutting in on the very area most vital to the U.S.

The administration has already begun rolling up some of the most egregious Chinese interventions, such as its attempt to control the ports on either side of the Panama Canal. But so far it has mostly employed negative measures: for example, threatening Mexico and Panama with sanctions and other economic punishments if they don’t go to greater lengths to cut the Chinese out of vital sectors in their national economies. And it has worked; Panama forced a sale of the Chinese ports on the Canal to American investors, while Mexico slapped a 50 percent tariff on Chinese imports just last month. 

But coercion is only half of the diplomatic toolkit. In addition to the stick, the U.S. needs to have carrots to deploy to incentivize governments to voluntarily comply with American desires. An overreliance on coercive measures is often counterproductive, and produces resentment among the populace—no one likes being dictated to by a great power. But if you reward governments that cooperate on fulfilling American interests, coercive measures often become unnecessary.

Here, the U.S. is deeply disadvantaged. The PRC has spent decades developing a sophisticated apparatus for foreign investment through Chinese state-owned banks and industries, in addition to credit provided by its central bank directly. It can offer interested governments major infrastructure upgrades on very cheap credit. The U.S. has little that can compare—the federal government’s Development Finance Corporation, which was created in 2018 as a response to China’s industrial diplomacy, is vastly outclassed by Chinese institutions.

Bessent’s move to reinforce Argentina’s economy—and Milei’s government—is a good step towards developing a more comprehensive diplomatic program capable of countering Chinese influence in Latin America and elsewhere. It is a concrete signal to foreign governments that the U.S. will reward countries that cooperate with it to achieve its interests. This will not only draw Argentina closer to the U.S., but will also encourage other countries to voluntarily assist the U.S. in accomplishing regional security objectives.

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China is well aware of the utility of these kinds of incentives. In fact, China currently operates an $18 billion currency swap with the Argentine government. That piece of monetary diplomacy has been successful enough to persuade Javier Milei, who was a virulent critic of Beijing during his campaign in 2023 and has remained a committed ally of the United States, to make favorable noises about the Chinese government and even promise to visit the country later on in his term. At least part of Bessent’s aim is to cut this piece of leverage China holds over the country: the $20 billion currency swap deal will reportedly require Argentina to use $5 billion worth of the funds to close one of its swap lines with Beijing.

Now, there’s no guarantee that America’s bet on Argentina will pay off in the way Bessent and Trump are clearly hoping it will. Milei’s economic project, despite its early success, is still on shaky footing. (And if there’s any country in the world that knows how to commit economic suicide, it’s Argentina.) But even in the worst-case scenario, the possibilities for losses are relatively low—a currency swap is a low-risk form of lending—and the benefits are durable. The U.S. will have demonstrated that it is willing to step in and give a hand to struggling Latin American countries that are committed to working with the U.S. to advance American interests, a development well worth the cost of the loan.

The swap line for Argentina is not enough on its own to begin the serious work of consolidating American influence and eliminating the presence of China in Latin America. For that, the U.S. will need to continue expanding its financial diplomacy and building out the Development Finance Corporation into a more formidable match for China’s economic diplomacy machine. But it’s a promising step in the right direction.