Long-Term Effects of DOGE’s Foreign Aid Cuts on Global Economic Stability

Long-Term Effects of DOGE’s Foreign Aid Cuts on Global Economic Stability

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Introduction

The Department of Government Efficiency (DOGE), led by Elon Musk and Vivek Ramaswamy under the second Trump administration, initiated a sweeping review and reduction of U.S. foreign aid programs starting January 24, 2025. This included a 90-day freeze on all U.S. foreign assistance, the effective dismantling of the U.S. Agency for International Development (USAID), and the termination of approximately 83% of foreign aid programs, as reported on X. These cuts, targeting over $40 billion in annual aid to 150 countries, aim to align U.S. spending with an “America First” policy. While proponents argue they save taxpayer money and curb wasteful spending, critics warn of severe long-term consequences for global economic stability. This article explores these effects, focusing on humanitarian, economic, geopolitical, and security dimensions.

Background on U.S. Foreign Aid and DOGE’s Actions

In Fiscal Year 2023, USAID managed over $40 billion in foreign assistance, representing less than 1% of the U.S. federal budget. This aid supported critical programs like the President’s Emergency Plan for AIDS Relief (PEPFAR), polio eradication, food security, and humanitarian relief in countries like Ukraine, Jordan, and Ethiopia. U.S. aid has historically promoted economic growth, health, and stability in recipient nations while advancing U.S. interests, such as countering rival powers like China and Russia.

DOGE’s cuts, announced as part of a broader effort to reduce federal spending by $115 billion, involve pausing bilateral and multilateral aid, furloughing USAID staff, and redirecting programs under the State Department. The policy shift prioritizes domestic economic benefits over international engagement, with Musk stating that USAID is “beyond repair” and should be shut down. These actions have sparked global concern, as the U.S. is the largest bilateral donor, providing $12.4 billion annually in global health aid alone.

Long-Term Effects on Global Economic Stability

1. Humanitarian Crises and Economic Disruption

The abrupt halt of U.S. aid threatens to exacerbate humanitarian crises, destabilizing economies in low- and middle-income countries (LMICs). Key impacts include:

  • Health System Collapse: Cuts to programs like PEPFAR, which supports 1.4 million people on antiretroviral therapy in Uganda alone, could lead to 6.3 million additional AIDS-related deaths over four years, 200,000 annual polio cases, and 166,000 extra malaria deaths. These health crises reduce workforce productivity, increase poverty, and strain public budgets, undermining economic growth.
  • Food Insecurity: The World Food Programme, reliant on U.S. funding for half its budget, faces operational challenges, risking famine in countries like Haiti and Yemen. Food insecurity disrupts agricultural markets, increases migration, and fuels economic instability.
  • Economic Shock: In 23 economies, mostly low-income countries, the aid freeze equates to over 1% of gross national income (GNI), with eight facing losses exceeding 3%. For example, countries like South Sudan and Malawi, heavily dependent on U.S. aid, could see GDP contractions, reduced trade, and higher unemployment.

These disruptions create a vicious cycle: declining health and food security reduce economic output, while economic downturns limit governments’ ability to fund services, perpetuating poverty and instability.

2. Reduced Economic Growth in Developing Nations

Foreign aid, when effective, supports economic growth by funding infrastructure, education, and health systems. A 2024 State Department literature review found that 11 of 15 studies showed positive impacts of aid on economic growth, though results vary due to governance and allocation challenges. DOGE’s cuts could reverse these gains:

  • Infrastructure Gaps: U.S. aid has funded ports, roads, and digital infrastructure, as seen in Ukraine’s pre-invasion digital advancements. Without this support, LMICs may struggle to attract private investment, stifling trade and growth.
  • Human Capital Losses: Cuts to education and health programs, such as UNICEF’s child mortality initiatives, could reverse gains in literacy (global primary enrollment rose to 90%) and life expectancy (up 10 years since the 1980s). A less educated and healthy workforce reduces productivity and innovation.
  • Dutch Disease Reversal: While aid can cause currency overvaluation, reducing exports (a phenomenon called Dutch disease), its absence may not automatically boost exports if countries lack capacity to capitalize on global markets. Studies suggest aid-funded infrastructure can increase exports long-term, an opportunity now at risk.

The loss of these growth drivers could trap LMICs in poverty, reducing global demand for goods and services, including U.S. exports, as developing nations are key markets for American farmers and businesses.

3. Geopolitical Shifts and Rival Influence

The U.S. withdrawal from foreign aid creates a vacuum that rival powers like China and Russia are poised to fill, reshaping global economic alignments:

  • China’s Expansion: China’s Belt and Road Initiative has invested over $1 trillion in infrastructure across Asia, Africa, and Latin America. By stepping back, the U.S. risks ceding influence in strategic regions like Kenya and Djibouti, where Chinese projects already dominate. This could shift trade routes and markets toward China, weakening U.S. economic leverage.
  • Russia’s Opportunism: In conflict zones like Ukraine and Syria, Russia may exploit aid cuts to expand its geopolitical foothold, destabilizing regions critical to global supply chains.
  • Loss of Soft Power: U.S. aid has historically built goodwill, fostering alliances and trade partnerships. Its absence could erode America’s reputation, reducing its ability to shape global economic policies or secure favorable trade deals.

These shifts may lead to a multipolar economic order less aligned with U.S. interests, impacting global markets and investment flows.

4. Increased Global Health and Security Risks

Aid cuts heighten the risk of infectious disease outbreaks and regional instability, with economic ripple effects:

  • Pandemic Threats: U.S.-funded programs have strengthened health systems to detect and respond to diseases like Ebola and mpox. Without this support, outbreaks could spread unchecked, disrupting global trade and supply chains, as seen during COVID-19. The International Rescue Committee warns that unchecked diseases increase mutation risks, threatening global health security.
  • Conflict and Migration: Aid stabilizes fragile states by addressing poverty and governance issues. Its withdrawal could fuel conflicts in regions like the Sahel or Central America, driving migration surges that strain economies in neighboring countries and the U.S. For example, cuts to Haiti’s UN Humanitarian Air Service could halt all UN programs, exacerbating displacement.
  • Economic Costs: Disease outbreaks and conflicts disrupt markets, raise commodity prices, and deter investment. A 2014 World Economic Forum study noted that aid prevents these crises by fostering resilience, a role now diminished.

These risks could lead to global economic volatility, with higher costs for crisis response outweighing initial aid savings.

5. Impact on U.S. Economy and Interests

The cuts also have domestic economic consequences, as U.S. aid supports American interests:

  • Trade and Markets: Developing nations are key markets for U.S. agricultural exports (e.g., grains) and manufactured goods. Economic decline in these countries reduces demand, hurting U.S. farmers and businesses. George Ingram of Brookings notes that aid creates stable markets that benefit the U.S. economy.
  • Job Losses: The aid sector supports thousands of U.S. jobs, from NGOs to contractors. The dismantling of USAID has furloughed staff and halted contracts, reducing domestic economic activity.
  • Security Costs: Destabilized regions may require costlier U.S. military interventions, offsetting savings from aid cuts. Joseph Amon of Johns Hopkins argues that aid prevents conflicts, saving long-term security expenses.

By undermining these economic and security benefits, the cuts could weaken the U.S. economy and global standing.

Counterarguments and DOGE’s Rationale

Supporters of DOGE’s cuts argue that foreign aid is often inefficient, fosters dependency, or funds corrupt regimes. Studies like Easterly’s The Elusive Quest for Growth show mixed evidence of aid’s impact on GDP growth, with issues like misallocation and corruption. DOGE claims the cuts save $115 billion, allowing reinvestment in domestic priorities like infrastructure or tax relief, which could stimulate U.S. growth. They also argue that private sector investment and trade, not aid, drive sustainable development, citing foreign direct investment’s role in technology transfer.

However, these arguments overlook aid’s broader stabilizing effects. While inefficiencies exist, programs like PEPFAR have measurable successes (17 million lives saved). Private investment often requires the public goods (e.g., health, education) that aid provides, and abrupt cuts leave no transition for markets to adjust. The savings, while significant, pale against the $4.7 trillion federal budget and may be offset by long-term costs of instability.

Potential Mitigating Factors

The extent of these effects depends on several factors:

  • Other Donors: Countries like Germany, Japan, and Canada could increase aid to fill the gap, though their budgets are also strained. China’s pledged $50 billion for Africa may help but prioritizes loans over grants, risking debt traps.
  • Domestic Resilience: LMICs with strong governance or diversified economies (e.g., Kenya) may weather cuts better than fragile states like Haiti or South Sudan.
  • Legal Challenges: Ongoing lawsuits argue that DOGE’s cuts violate congressional authority, potentially restoring some funding. However, delays could still disrupt programs.
  • Transition Strategies: Gradual phase-outs, as seen in past donor exits, could mitigate harm, but DOGE’s abrupt approach limits this possibility.

Without coordinated global responses, these factors are unlikely to fully offset the cuts’ impact.

Conclusion

DOGE’s foreign aid cuts, while aimed at fiscal efficiency and domestic priorities, pose significant risks to global economic stability. By exacerbating humanitarian crises, stunting growth in developing nations, ceding geopolitical influence, and increasing health and security risks, the cuts could create a more volatile world economy. The U.S. itself may face reduced trade, job losses, and higher security costs, undermining the “America First” rationale. While inefficiencies in aid justify scrutiny, the abrupt and sweeping nature of these cuts ignores decades of progress in health, poverty reduction, and stability. To mitigate long-term damage, other donors must step up, and the U.S. should consider targeted reinvestments in high-impact programs. Global economic stability depends on cooperative efforts, and America’s retreat could have far-reaching consequences for all.