Trade or Aid

The administration recently announced an initiative asking other countries to sign a declaration calling for “trade over aid.” It intends to introduce its proposal at the United Nations at the end of April and is launching a diplomatic effort to persuade other countries to sign on. So far, it does not appear they’re having much luck, but it is early in the effort, and the proposal may well attract some support. At the same time, however, it has also started, or perhaps restarted, an old debate about how best to help developing countries.

Most experts in the field would argue that both trade and aid are important and would agree that it is possible to get both wrong. The Trump proposal criticizes the global aid structure by saying it “has often created dependency, inefficiency, and corruption.” There is some truth to that. One study, for example, concluded that an effort to establish rural health clinics in Chad ended with 99 percent of the money not getting to its intended destination. It is also important to note, however, that some aid is intended primarily for humanitarian rather than development purposes. Efforts to wipe out malaria, George W. Bush’s President’s Emergency Plan for AIDS Relief (PEPFAR) addressing the HIV/AIDS epidemic, and numerous efforts at famine relief are all examples of developed countries simply trying to help others deal with disaster and tragedy. And, of course, making people healthy also has a positive economic impact. One of the biggest mistakes of the Trump administration has been its drastic cuts in this kind of relief.

The Trump proposal focuses on trade as the solution to developing countries’ problems, and it advocates a classic free market approach of low taxes, minimal regulation, private property rights, and rule of law. This is the first of two problems. All those market-oriented elements are good things and have propelled economic growth in many countries for decades. There is, however, another model that has also had significant success, primarily in Asia. Japan in the 1960s and 1970s discovered that it was possible to outwit David Ricardo by creating comparative advantage through a combination of government “guidance,” subsidies, and protection from imports. The key is to identify industries with growth opportunities, subsidize their start-up and initial manufacturing, and protect them from foreign competition.

Japan, South Korea, Taiwan, Singapore, and China have all followed that path with great success, although the subsidies usually last far longer than necessary, and in China’s case, “guidance” really means instructions. That model has also caused a great deal of trouble for the rest of the world, which has found itself repeatedly overwhelmed with products from those countries that undermine their own industries, but the countries pursuing the model have had success with it. Of course, that is not something the United States would recommend, although, ironically, a number of the recent Trump industrial policy initiatives are closer to it than to the free-market principles the administration advocates. This is becoming one of those cases of “Do what I say, not what I do,” that undermines the administration’s argument and will likely end in disappointment.

The other problem with the proposal is its hypocrisy. The declaration states, “The most effective economic development assistance is mutually beneficial and profitable trade partnerships between the private sectors of countries.” But the idea of a “mutually beneficial” trade partnership is sharply at odds with Trump’s “America First” trade policy, which is designed to force open other countries’ markets to U.S. products without making any concessions in return. None of the trade agreements negotiated so far comes anywhere near being balanced or mutually beneficial. They are intended to benefit the United States, and Trump justifies them by claiming they are compensation for years of other countries’ taking advantage of the United States.

A trade policy that helps other countries develop is inevitably one that requires the United States to buy their products. This was the concept behind the Africa Growth and Opportunity Act (AGOA), recently retroactively renewed but due to expire again at the end of the year. It provided tariff-free entry of eligible African products into the United States. AGOA has not been as successful as it could have been for a variety of reasons, including product and country eligibility limitations and the U.S. administration’s use of it as a political tool rather than a development instrument, but the concept was the correct one—if you want to help a country develop through trade, you have to buy their stuff. The late lamented Generalized System of Preferences program, which the administration seems to have no interest in restoring, was based on the same principle.

The cynical view of the Trump declaration is that it is a smokescreen being put up to hide the massive cuts in foreign aid the administration has made and to make it look like U.S. trade policy is more benign than it is. As the saying goes, you can put lipstick on a pig, but when all is said and done, it’s still a pig.

Author’s Note: I retired from CSIS on March 29, 2026. I plan to continue writing this column and participating in the Trade Guys podcast, so please continue to read and listen. However, my CSIS email address will no longer be working, so if readers or podcast listeners want to contact me directly, they should do so at [email protected].

William A. Reinsch is a senior adviser (non-resident) and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C.