In the first days of his second term as president, Donald Trump initiated a sweeping reshaping of the United States’ foreign aid policy, starting with an executive order that halted all foreign aid programs. On Feb. 2, 2025, the federal government announced that they were in the process of shutting down the U.S. Agency for International Development (USAID), which was created by Congress in 1961 as part of the Foreign Assistance Act.
Last week, the Supreme Court required the Trump Administration to pay contractors for foreign aid work already completed (roughly $2 billion) and a federal judge ruled that the president overstepped his constitutional authority by freezing congressionally-appropriated foreign aid funds, but the outlook for the survival of the agency is bleak.
Willamette Associate Professor and Chair of Economics Raechelle Mascarenhas helps us understand the implications of this decision.
How significant was USAID’s funding in the overall landscape of U.S. foreign aid? How much of the federal budget is for foreign aid?
In fiscal year 2024 the U.S. disbursed $56 billion in foreign assistance of which $32 billion went through USAID to 159 countries and regions.
Over the last two decades U.S. foreign assistance, including funds disbursed through USAID and other agencies, has ranged between 0.7% to 1.4% of total federal budget outlays with the share at 1.2% in 2023, the latest year with complete data.
While the U.S. is the largest donor in terms of dollars, it devotes a much smaller percentage of national income to foreign assistance at just 0.24% in 2023, relative to other countries like Norway (1.09%) and Sweden (0.93%).
What are the potential short-term and long-term consequences of shutting down USAID? Which countries and regions may be impacted the most? Which sectors (e.g., healthcare, education, infrastructure) will be hit hardest by this decision?
USAID funding primarily supports humanitarian assistance, health, economic development and education as well as efforts to promote democracy, human rights and governance. USAID exclusively provides economic assistance–distinct from the Department of State which provides military aid. In 2024, Ukraine was the largest recipient of foreign assistance channeled through USAID with countries in Sub-Saharan Africa and Asia also receiving substantial support.
The cuts to USAID could have far reaching ramifications. USAID’s health initiatives include providing polio vaccinations where the disease still circulates and helping to stop the spread of viruses which have the potential to cause a pandemic. USAID also provides food to famine-stricken countries and conducts data analysis to predict where food shortages are emerging.
While the consequences of these reductions in USAID funding will be most acutely felt in recipient countries, many of the effects will also be felt by people living in the US. Reductions in health and humanitarian assistance may accelerate worldwide disease transmission, as demonstrated with COVID-19. Reduced peacekeeping could trigger political and economic instability in recipient countries and heighten U.S. security threats. Since a substantial portion of USAID funds are spent in the U.S. to purchase food, medicines and hire Americans to manage projects,cuts to USAID will result in reductions in economic spending within the U.S.
What alternative funding mechanisms or organizations could fill the gap left by USAID’s shutdown?
Foreign aid funding is often done via a yearly budgeting process in most donor countries. Since the USAID shutdown happened so rapidly, it will be difficult for other donor countries to bridge the gap. Additionally, USAID focused heavily on managing disease outbreaks and developed unique capabilities and capacity that cannot be easily replicated by other countries.
Over time, other donor countries will need to step up to fill this gap in financing though they are often guided by their own strategic interests which may not align with those of the U.S. Additionally, recipient countries will need to find resources to fend for themselves, which will be especially challenging since these are often countries that are impoverished and facing serious fiscal deficits. Philanthropic organizations, like the Buffett and Gates Foundations, may also have to increase their funding to support such efforts.
How does the USAID compare to other international aid organizations, such as the World Bank or IMF?
USAID and other funding through the State Department is solely at the discretion of the U.S. government and can be explicitly used to further the strategic interests of the country. Funding given to the World Bank and IMF are put into a common pool that is disbursed in accordance with the funding priorities of these organizations.
Are there historical precedents for major reductions in U.S. foreign aid, and what lessons can we learn from them?
Since USAID was established in 1961 we have not seen such drastic reductions in foreign assistance. The current situation is highly unprecedented.
