Harnessing Development Aid: A Smarter Path to US Security and Economic Growth

A small order with big implications was included in President Trump’s flurry of first-day actions: —the decision to suspend foreign aid until further review. The move reflects the lack of appetite in the United States for spending money abroad, a fact laid bare by last year’s much-delayed assistance to Ukraine. More broadly, President Trump’s order is consistent with the previous two administrations’ reliance on domestic policies, including trade protection, to achieve America’s economic goals. 

Yet development assistance remains one of America’s most powerful economic and security tools. The US spends more than $60 billion annually on projects ranging from sanitation to healthcare to critical infrastructure. Rather than doing less, the US would benefit from doing much more. 

With the Trump administration considering its core foreign policy goals, there’s an opportunity to enhance development programs in ways that make good strategic sense for the US and its partners. Here are three ways the new administration can improve its development policy for greater security at home and abroad. 

First, the US needs closer coordination among its development, commercial, and foreign policy agencies. 

Many of America’s closest allies have already streamlined policymaking for more effective lending overseas. In 2013, Canada and Australia each merged their aid agencies with their trade and foreign affairs departments. The United Kingdom followed suit in 2020. 

The core motivation was the realization that a “whole of government approach”—often discussed in the US but rarely implemented—was the best way to coordinate each country’s economic and security goals. A 2017 summary of Australia’s strategy states the benefits plainly, noting that funding development abroad “also serves [Australia’s] interests because the more that countries can provide economic opportunity for their citizens, the more stable they will be.” 

By contrast, the US languishes behind with separate agencies and departments for foreign policy, development, and trade all linked together by cumbersome and inefficient interagency processes for planning and coordination. Short of folding these agencies into one department, there should be careful review of administrative processes and bureaucracy to expedite development lending to strategic partners overseas. 

Second, development finance can play a more central role in boosting America’s trade interests—not least, securing critical minerals and energy sources. 

The previous two administrations rolled back America’s commitment to free trade, putting new trade deals on hold in favor of “framework agreements,” while at the same time maintaining the highest industrial tariffs in decades. 

Yet the US simply doesn’t have the critical minerals, the productive infrastructure, or the labor to produce everything it needs. Foreign partnerships are necessary to keep America’s economy running at home, as well as to build security abroad. Partners overseas have the resources and the capacity that America needs, yet they must also be incentivized to work with the US for more secure supply chains. 

Development assistance should be a tool the US deploys (in part) to secure its economic security through trade-enabling investments abroad. At a minimum, the new administration must encourage Congress to re-authorize the Development Finance Corporation (DFC), the African Growth and Opportunity Act (AGOA), and other assistance programs that strengthen our vital foreign partnerships.

Third, and most simply, development finance can promote US exports. 

When America invests strategically overseas, it sees a return on that investment—to the tune of $231 worth of exports for every dollar spent abroad. Realizing these benefits is more crucial than ever. 

Take the engineering industry for example. US firms account for an estimated 13% of total international contracting revenue, while Chinese firms contribute about 35% and European firms represent around 40%. This means that Chinese and European firms are designing and building  far more infrastructure than their US counterparts. While doing so, they are forging key governmental and commercial relationships that generate export revenue and support supply chain resilience. 

While the US government is already the world’s largest donor of overseas development assistance, more must be done to encourage US firms to participate in development assistance abroad. Initiatives such as the Biden administration’s Partnership for Global Infrastructure Investment (PGI) and the work of agencies such as the United States Trade and Development (USTDA) are platforms on which to build. Yet they do not invest nearly enough to boost US private sector participation in developing markets. The US Government must do more to incentivize US firms to participate in projects in the developing world through its development assistance while ensuring the benefits of this investment support local businesses and communities. 

The next four years in the US and around the globe will be highly volatile. There are increasing challenges, such as climate change, inequality, and geopolitical instability. But with trade policy in flux, the US can turn to development policy to help bridge the gap. As US allies and competitors have shown, development policy, particularly in infrastructure, can help achieve security and economic outcomes while creating a safer, more habitable, and prosperous planet for all.