Trump's 90 - Day Aid Freeze: Global Impact and Opportunity

Six days post-inauguration, Donald J. Trump’s ascension to the presidency has ushered in a wave of surprises for both Americans and the global community. As part of his executive actions, Trump has suspended U.S. aid funding for 90 days, pending a review. This decision has significant ramifications for sovereign nations that rely on U.S. support for key development, health, and security programs. A fundamental point to consider is that many developing countries depend heavily on U.S. funding for social sectors such as health, water and sanitation, education, and environmental programs. A reduction in this aid could lead to sharp declines in crucial funding streams, as Trump seeks to realign U.S. fiscal priorities to “make America great again.” As I highlighted in my previous analysis, Trump’s stance signals a stronger focus on business relationships over traditional aid commitments, which he views as a resource drain.

This funding freeze viewed in tandem with Trumps controversial decision to exit the World Health Organization (WHO) will potentially impact global disease response and health initiatives severely. From an economic perspective, health quality is a critical factor in productivity. In fact, a Cobb-Douglas production function shows how public health plays a pivotal role in labor force productivity. Many African nations, in particular, have been grappling with fiscal deficits that constrain public spending. U.S. aid has historically provided some fiscal relief, so the suspension of aid could deepen budgetary challenges.

Possible scenarios resulting from the freeze include: a complete cut in U.S. aid (unlikely), a sharp decline in funding (likely), or a more selective, commercial approach to aid post-restructuring (most likely). Trump’s preference for direct business dealings, rather than philanthropic aid, points to a more transactional approach in foreign relations.

Here’s an analysis of the potential implications for emerging markets, both from an opportunity and risk perspective:

1. Humanitarian Assistance: Many African and Asian nations rely on U.S. aid for disaster relief, food security, and poverty alleviation. A suspension of funding could disrupt these vital services, exacerbating crises such as famine, droughts, or conflict-driven displacement. Governments in these regions will need to explore alternative funding sources and strategic solutions using local resources.

2. Health Programs: U.S. funding plays a critical role in large-scale health initiatives, including the President’s Emergency Plan for AIDS Relief (PEPFAR) and malaria control programs. A funding freeze could halt ongoing treatment, prevention, and research efforts, leading to increased mortality rates and setbacks in global disease control. This, combined with the withdrawal from the WHO, could have severe immediate and medium-term consequences, particularly in nations like India, Nepal, and the Philippines, where U.S. aid is crucial for health programs like immunization, maternal health, and HIV/AIDS treatment.

3. Security and Stabilization: The U.S. has been instrumental in supporting emerging markets’ efforts to combat terrorism, insurgencies, and organized crime, especially in regions such as the Sahel, Somalia, and the Lake Chad Basin. The funding freeze risks undermining these security partnerships, potentially leaving gaps that adversaries like China and Russia could exploit to expand their influence in strategically critical areas.

4. Development Projects: U.S. aid supports infrastructure projects essential to sustainable development goals (SDGs), including water supply, education, and economic development. The aid suspension could delay or stall progress on long-term poverty alleviation efforts, jeopardizing the achievement of economic stability. These disruptions could undermine global objectives, especially in countries where infrastructure development is key to economic growth.

5. Liquidity Funding: The banking sector in emerging markets benefits from foreign exchange inflows tied to U.S. aid. A reduction in U.S. funding could constrain liquidity in countries with limited access to international markets, impacting financial stability and growth prospects.

6. Geopolitical and Foreign Policy Shifts: Countries that once relied on U.S. aid may increasingly turn to China or Russia for support, shifting regional power dynamics. This could tilt geopolitical balances, giving rise to more pronounced East-West tensions, with lasting implications on global strategic relations.

Lessons for African and Asian Governments

The time now for Africa and Asia is 'self sufficiency o'clock.' It is time to boost intra - continental trade, sustainable energy & agriculture and above all invest in research and development for healthcare. There is urgent need to invest in sustainable value chains and recalibrate private sector pulse to build capacity. Sovereign wealth funds will be very critical going forward.

This shift in U.S. policy underscores the need for these regions to seek indigenous solutions to local challenges. Africa, in particular, has been weighed down by debt and resource imbalances that hinder fiscal autonomy. As a result, many nations struggle to fund domestic programs. Increased investment in research and development, as well as trade and value-added industries, is critical for boosting sovereign earning capacities and developing long-term funding pools for social programs. The establishment of sovereign wealth funds is now more urgent than ever to shield nations from global financial shocks and socio-economic crises. While Trump’s policies are disruptive, they also highlight the need for Africa and Asia to become more self-reliant, reducing dependency on external aid. The recalibration of U.S. aid funding carries significant growth implications for countries still navigating fiscal challenges due to debt burdens, social instability, post-conflict recovery, and other socio-economic issues.

In conclusion, the suspension or decline in U.S. aid funding could have far-reaching consequences for nations still grappling with fiscal deficits and development challenges. Yet, it also presents an opportunity for these nations to reframe their approach to economic growth and sustainability, ultimately fostering a more resilient and self-sufficient future.

Mutisunge Zulu is a Risk Leader, Economist & Strategist, Qualified Risk Expert by the Directors and Chief Risk Officers Institute, Harvard Business School Alumnus and a 2024 Alliance Manchester Business School Scholar.