In today’s Finshots, we explain why US President Donald Trump wants to turn off the foreign aid tap and whether his reasons hold up.

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The Story

USAID is in trouble. If you don’t know, USAID (the United States Agency for International Development) is the US government’s foreign assistance, humanitarian aid and development arm. And the fact that the aid it hands out doesn’t add to a country’s debt makes a world of difference for nations in crisis.

In 2023 alone, it spent $40 billion in aid programmes worldwide, with a big chunk going to Ukraine. India too has been a long-term recipient of USAID’s support. Since 1951 (even before it was officially set up), it has helped save over 2 million children in India, prevented thousands of deaths from pneumonia and diarrhoea, and even pledged nearly $13 million for the country during the pandemic. And this year, India was set to receive another $140 million.

But that money isn’t coming anymore because US President Donald Trump and his DOGE (Department of Government Efficiency) buddy, Elon Musk, want to shut USAID down.

Sidebar: The DOGE’s purpose is to cut wasteful spending and slash unnecessary regulations.

Why’s that, you ask?

Well, three reasons.

1. They believe USAID wastes funds while promoting ideas that contradict American interests.
2. They think it’s “a criminal organisation” “run by a bunch of radical lunatics”, and that it was “time for it to die”.
3. And they argue that USAID acts like a global charity, separate from national interests, wasting taxpayers’ money.

But here’s the thing. Not all of these reasons hold up under scrutiny. And some of the so-called “evidence” might actually stem from issues beyond USAID’s control. Here’s what we mean…

Take myth #1 for instance, that the agency spends too much, too wastefully and that foreign aid is unpopular.

Well, the truth is a mix of no, partly yes and a big no.

First, the spending. Yes, the US is the world’s largest donor and USAID hands out about 60% of its foreign assistance. But in 2023, USAID’s spending was less than 1% of the total US federal budget (government spending). Rich countries are expected to give 0.7% of their GDP in foreign aid to developing countries. And although the US isn’t part of this commitment, even if we use it as a benchmark, its total foreign aid is less than 0.2% of its GDP. That’s not much.

Now, the wasteful spending part. This argument likely stems from the fact that some USAID funds go to governments in developing countries, some of which are corrupt. But between 2015 and 2022, less than 5% of its budget went directly to foreign governments. And most of the aid flows through private channels like NGOs, community groups, businesses, universities and international organisations to make sure it reaches the right people (and not the officials).

And it makes a difference. Since 2000, extreme poverty has dropped from 36% to 9% globally, maternal deaths have gone down by 34%, and death rates in USAID-supported areas have dropped faster than in other places.

As for aid being unpopular, that perception could come from the fact that less than 5% of USAID’s budget goes towards core economic growth programmes which might explain the frustration. Some countries feel like they’re getting donations instead of real partnerships. Many leaders say they want trade, not just aid. So maybe the problem isn’t foreign aid being unpopular. It’s that USAID needs to prioritise economic growth alongside assistance.

Then you have #2 which says that USAID is a criminal organisation. You’ve probably heard that it has funded bioweapon research (including COVID-19) or even supported Syrian terrorists. But to see if the allegations hold water, you’ll need to dig deeper and understand how USAID actually works.

See, it’s not like USAID just cuts a cheque for a cause and walks away. It operates through a mix of civil servants, contract workers and NGOs on the ground. Some of them work like full-time employees, just without the federal perks. And they far outnumber the permanent civil service employees and foreign service officers that normally work for a US government arm. And while this unusual structure may make sense because it enables global reach, it also leaves room for misuse.

Like in the Syria case, USAID had given money to feed refugees. But an NGO agent siphoned off about 10% of it over four years and redirected it to a group linked to al-Qaeda. But it wasn’t as if USAID let this slide. Once it uncovered this, it shut the programme down immediately.

So, does that make USAID a terrorist organisation? Not really. The problem isn’t its intent, it’s the oversight. And instead of calls to shut it down, maybe the focus should be on fixing the cracks in its system. 

Because you see, shutting down USAID isn’t just about cutting off foreign aid. It goes against the very reason it was created in the first place. (We’ll tell you why in a bit)

That brings us to myth #3 that USAID is just a global charity that doesn’t resonate with America’s interests. Sure, it provides aid, but that’s not the whole story. 

The idea of international development assistance took off after World War II, when war-torn regions, especially in Europe, needed help rebuilding. But this wasn’t pure charity. It was a strategic move. By reducing poverty and boosting production, the US was actually creating future markets for its own goods.

Then in 1961, President John F. Kennedy formalised this effort by setting up USAID as an independent agency. Courtesy: the Cold War. At the time (1945 to 1991), the US and the Soviet Union (coalition between Russia, Belarus, Ukraine, Georgia, Azerbaijan and Armenia) were fighting for global influence. And that’s when the US helped poor countries so they wouldn’t turn to the Soviet Union.

Now, today even though the Soviet Union is gone, the power struggle isn’t. Russia and China are still trying to gain global influence. China, for example, has spent billions on roads, railways and energy projects in Africa in exchange for access to valuable minerals. So if USAID shuts down, it’s not just charity that stops. It’s also an open invitation for the US’s biggest rivals to step in, play hero and gain influence over economically weaker nations.

So yeah, these claims should be taken with a pinch of salt. Some are stretched, some are myths and some have more to do with politics than facts.

Okay, but what about the part where they allege that USAID is run by lunatics? Now, this isn’t something we do at Finshots, but we found some context that’s interesting enough to share. Foreign aid has long been seen as a Democratic-backed initiative. After all, President Kennedy, a Democrat, founded USAID. Trump, a Republican, however wasn’t exactly a fan of it. So, maybe that’s where some of the backlash comes from.

Shutting down USAID though is not so simple. Even with a freeze on approved aid, actually dismantling it would require the Congress (US Parliament) to vote and change the law. And withholding funds approved by Congress is a tricky move. It could even be unconstitutional and lead to a potential Supreme Court battle.

Could that change Trump’s or Musk’s stance? Who knows. By the time you read this, they might have changed their minds, making this entire story irrelevant. 🤦🏽‍♀️

Until then…

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