Trumps War on Foreign Aid, the Rise of Transactional Diplomacy

Mar 23 , 2025
By Bright Simons

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President Donald Trump’s decision to gut USAID — effectively dismantling 42pc of the global humanitarian aid system and jeopardising millions of lives — has reignited the debate over the effectiveness of foreign assistance. With many developing countries trapped in a seemingly inescapable cycle of aid dependency, it is increasingly clear that the dominant model is ill-suited to today’s economic and geopolitical realities.

But, many of the alternatives being pondered in the Age of Trump offer no real solution, either.

Foreign funding has long been a key driver of global development, shaping economic trajectories in often overlooked ways. The United States itself relied on foreign financing during its War of Independence, and China’s industrial boom was partly driven by Japanese soft loans. Japan, too, sought World Bank financing to build the power plants that fueled its rapid growth. Even the United Kingdom (UK) turned to the International Monetary Fund (IMF) 11 times between 1956 and 1977 – more frequently than today’s most aid-dependent African economies. And, in the late 1940s, Spain turned to Argentine handouts after being excluded from the Marshall Plan.

Even the mobile payment platform M-Pesa, long a symbol of African self-reliance on innovation, got its start with the support of an aid grant.

Until the late 1970s, most IMF loans went to what are now considered advanced economies, with nearly 72pc of IMF lending directed to these countries in the 1960s alone. But over time, the most dynamic and enterprising economies managed to break free from aid dependency, and development assistance dwindled, eventually becoming a negligible fraction of global financial flows.

Today, the foreign direct investment passing through the Netherlands alone each year is roughly 15 times the global aid budget. With a few exceptions, like the Asian Tigers in the late 1990s or Greece and Portugal in the 2010s, the past few decades have shown that aid dependency is not inevitable.

But, accelerating economic development requires a sustained global effort. Regrettably, wealthy countries’ commitment to the traditional aid paradigm – as outlined in the Addis Abeba Agenda and championed by the European Union (EU) – has always been tenuous at best. This is evident in their failure to meet their 1970 pledge to allocate 0.7pc of their gross national income (GNI) to development assistance. Within three years of setting that target, OECD countries’ average contribution had already fallen to 0.2pc of GNI. In 2023, it was 0.37pc.

As emerging economic powers like China and the United Arab Emirates (UAE) assume a larger role in shaping the rules of the international system, a more transactional approach to aid – explicitly tying development assistance to business interests and geopolitical objectives – is gaining traction.

This signals a reversion from today’s aid paradigm to the era when aid was primarily driven by explicit self-interest. At gatherings like the St. Petersburg International Economic Forum, policymakers call for a new multipolar age in which developing countries in Africa and elsewhere would be able to assert their sovereignty, engage with “development partners” on their own anti-colonial terms, and no longer serve as a "Graveyard" for Western aid projects.

Western policymakers seem oblivious to these developments. While they mourn the humanitarian fallout from USAID’s demise, such as the escalating famine in Sudan, Russia and other powers are busy cutting strategic deals. For example, even as 60pc of Uganda's HIV budget hangs in the balance, its government is forging new energy and infrastructure partnerships with the UAE. But, few expect rising economic powers like China and the UAE to assume traditionally Western roles like distributing antiretrovirals and menstrual pads or defending press freedom and judicial independence.

Although they may occasionally make such gestures for optics, they have no intention of reshaping recipient countries’ institutions or pushing for systemic reforms.

The St. Petersburg model of development cooperation is narrower, more explicitly transactional, and far less institutionally intrusive than its Western counterpart. It makes no lofty promises. Instead, it operates as a kind of portmanteau diplomacy – a blend of strategic gifts, investments, and land acquisitions, unburdened by grand ambitions or the risk of losing credibility when such promises fall short.

Trump’s transactional mindset aligns seamlessly with this paradigm shift. But, while proponents of the portmanteau model present it as a pragmatic approach to development, their claim that it creates a faster escape route from aid dependency veers into utopianism. China’s assistance of this type has done little to accelerate Zimbabwe’s economic development; if anything, it has deepened the country’s reliance on aid.

To be sure, the Western paradigm has failed to live up to its promises. But its likely replacements offer little cause for optimism. Lacking the vast development-consulting industry that has grown around the Western model, emerging powers remain unwilling to engage in the institutional oversight needed to create localised alternatives. There are no drawn-out deliberations or endless hand-wringing, as is often the case with Western aid. When the going gets tough, countries like China simply walk away.

In my home country, Ghana, the transactional aid model has resulted in abandoned Chinese-built dams and failed Indian-backed gold and sugar refineries. While activists like me have long criticised the European aid model for being co-opted by a cabal of local and Western insiders, the new wave of projects financed by emerging powers has been even more damaging.

But, regardless of the aid model, the fundamental challenge facing low-income countries remains unchanged: unlike Asian and European countries that successfully moved beyond aid dependency, countries like Ghana continue to grapple with a political elite seemingly incapable of effective policy leadership. Consequently, other domestic actors, such as the vibrant civil society watchdogs in Ghana and Kenya, should rise to the occasion and monitor development spending to ensure better coordination, prioritisation, and efficiency.

Activists celebrating the potential emergence of a post-imperial, agency-driven, multipolar aid system would do well to remember that economic progress will remain out of reach as long as civic disempowerment persists. Until we confront this fundamental challenge head-on, no aid paradigm will be able to put developing countries on the path to economic independence.

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PUBLISHED ON Mar 23, 2025 [ VOL 25 , NO 1299]

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