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Foreign Aid: Good for America, Good for the World

July 09, 2017

When asked what percent of the federal budget the United States spends annually on foreign aid, Americans on average guessed 26 percent—a far cry from the less than one percent the US spent in 2016 [1]

Of that one percent, funds go to HIV/AIDS prevention, infrastructure spending, assistance to refugees, and public-private partnerships, among other programs. It is clear that US foreign assistance benefits many around the world. Yet perhaps the most overlooked group that benefits from American foreign aid is Americans themselves.

A great example of this mutual benefit is former President Obama’s Power Africa plan. Forbes Magazine summarizes the program as private investments combined with “$7 billion in taxpayer money to help bring 10,000 mW of electricity to sub-Saharan Africa” [2]. One can easily imagine someone criticizing a program like this on the basis that the money could be better spent boosting the American economy and promoting American jobs. However, as Obama noted, the United States also benefits greatly from the deal—a win-win situation. As Forbes describes, the plan includes funding for natural gas power plants. This holds great promise for American workers and companies, as the United States has recently, with the development hydraulic fracturing, become a global leader in natural gas production and is set to be a net exporter of natural gas this year [3]. This is especially beneficial considering concern related to the declining availability of blue-collar jobs in the United States. Moreover, of the $7 billion, “General Electric will be perhaps the biggest beneficiary…” [4]. In other words, by providing direct benefits to African countries, we, directly and indirectly, help finance American companies and American jobs.

Image: State and Other International Programs made up a small portion of the 2007 federal budget. Source: Wikimedia Commons.Image: State and Other International Programs made up a small portion of the 2007 federal budget. Source: Wikimedia Commons.

One of the largest foreign aid programs in recent years is the President’s Emergency Plan for AIDS Relief (PEPFAR). The program, which President George W. Bush started in 2003, “has transformed the global HIV/AIDS response… [by supporting] nearly 11.5 million people with antiretroviral treatment… [and] nearly 2 million babies have been born HIV-free to pregnant women living with HIV” [5]. While the program has clear humanitarian and health benefits for people around the world, it also supports the American economy by promoting American exports. Specifically, Anne Boring, a scholar at the French Université Paris Dauphine found “a developing country’s participation in the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) significantly increases U.S. exports [of pharmaceuticals]” [6]. In other words, the program increased demand for pharmaceuticals—a sector that American companies have historically excelled in.Critics might say that programs like these are nothing more than “corporate welfare”—government money spent subsidizing specific companies or industries with few benefits to those outside those companies or industries. But beyond direct investments in American companies, these programs also promote economic growth across the American economy by building stronger foreign markets for American goods. In 1995, former USAID Administrator J. Brian Atwood cited that “Most of the growth in U.S. exports is not coming from trade with our traditional

Critics might say that programs like these are nothing more than “corporate welfare”—government money spent subsidizing specific companies or industries with few benefits to those outside those companies or industries. But beyond direct investments in American companies, these programs also promote economic growth across the American economy by building stronger foreign markets for American goods. In 1995, former USAID Administrator J. Brian Atwood cited that “Most of the growth in U.S. exports is not coming from trade with our traditional partners but from the explosive growth in American exports to the developing world… [such that] this growth in trade to the developing world mean $46 billion more in U.S. exports and 920,000 more jobs in the United States” [7]. Indeed, this trend has continued such that 44.6 percent of American exports went to developing countries in 2011 compared to 29.4 percent in 1985 [8].However, this increase in exports is far from guaranteed given China’s increased interest in providing foreign aid, especially to Africa. Reuters writes that “more than half of China’s foreign aid of over $14 billion between 2010 and 2012 was directed to Africa” [9]. While the article goes on to describe that this is far less than the United States spent, it none-the-less represents a strong and growing interest on the part of the Chinese government in Africa. Brookings reports that Chinese President Xi Jinping “emphasized that China needs to focus on the political and strategic benefits [of foreign aid to help] China promote Chinese exports and service contracts” [10].

However, this increase in exports is far from guaranteed given China’s increased interest in providing foreign aid, especially to Africa. Reuters writes that “more than half of China’s foreign aid of over $14 billion between 2010 and 2012 was directed to Africa” [9]. While the article goes on to describe that this is far less than the United States spent, it none-the-less represents a strong and growing interest on the part of the Chinese government in Africa. Brookings reports that Chinese President Xi Jinping “emphasized that China needs to focus on the political and strategic benefits [of foreign aid to help] China promote Chinese exports and service contracts” [10].Thus, it is clear that China recognizes the domestic economic importance of foreign aid. Unfortunately, in the United States, next year’s budget proposal includes a 28 percent cut to diplomacy and aid, $650 million less over three years to the World Bank, less money to the United Nations, and other cuts to foreign affairs spending [11]. Some might argue that this money might be better spent at home to boost American growth or American jobs. However, one cannot ignore that foreign aid—though it is likely not the most efficient way to boost domestic American growth—offers a mutual benefit to both the donor (the United States) and to the recipients. When we couple this domestic economic benefit with the promotion of global security and improved quality of life for millions around the world, it’s easy to see that foreign aid is good for America—and for the world.

Thus, it is clear that China recognizes the domestic economic importance of foreign aid. Unfortunately, in the United States, next year’s budget proposal includes a 28 percent cut to diplomacy and aid, $650 million less over three years to the World Bank, less money to the United Nations, and other cuts to foreign affairs spending [11]. Some might argue that this money might be better spent at home to boost American growth or American jobs. However, one cannot ignore that foreign aid—though it is likely not the most efficient way to boost domestic American growth—offers a mutual benefit to both the donor (the United States) and to the recipients. When we couple this domestic economic benefit with the promotion of global security and improved quality of life for millions around the world, it’s easy to see that foreign aid is good for America—and for the world.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1] Poncie Rutsch, “Guess How Much of Uncle Sam’s Money Goes to Foreign Aid. Guess Again!,” NPR, February 10, 2015, http://www.npr.org/sections/goatsandsoda/2015/02/10/383875581/guess-how-much-of-uncle-sams-money-goes-to-foreign-aid-guess-again

  [2] Christopher Helpman, “Obama’s ‘Power Africa’ Plan Greases Billions in Deals for General Electric,” Forbes, July 1, 2013, https://www.forbes.com/sites/christopherhelman/2013/07/01/with-power-africa-plan-obama-to-grease-billions-in-deals-for-g-e/#5657b47b10c2

  [3] Scott DiSavino, “After Six Decades, US Set to Turn Natgas Exporter Amid LNG Boom,” Reuters, March 29, 2017, http://www.reuters.com/article/us-usa-natgas-lng-analysis-idUSKBN1700F1

  [4] Christopher Helpman, “Obama’s ‘Power Africa’ Plan Greases Billions in Deals for General Electric,” Forbes, July 1, 2013, https://www.forbes.com/sites/christopherhelman/2013/07/01/with-power-africa-plan-obama-to-grease-billions-in-deals-for-g-e/#5657b47b10c2

  [5] “About Pepfar,” The United States President’s Emergency Plan for AIDS Relief, https://www.pepfar.gov/about/270968.htm

  [6] Anne Boring, “Does Foreign Patent Protection Increase the United States’ Trade of Pharmaceuticals with Developing Countries?,” University of Queensland, June 2010. http://www.uq.edu.au/economics/documents/jobmarketpapers/jmpboring.pdf

  [7] “’The Future of Foreign Aid’—Brian Atwood,” University of Pennsylvania African Studies Center, http://www.africa.upenn.edu/Articles_Gen/usaid_frnAid.html

  [8] Jun Nie and Lisa Tayler, “Economic Growth in Foreign Regions and U.S. Export Growth,” Kansas City Federal Reserve Bank, 2013, https://www.kansascityfed.org/publicat/econrev/pdf/13q2Nie-Taylor.pdf

  [9] “China Says More than Half of Foreign Aid Given to Africa,” Reuters, July 10, 2014, http://www.reuters.com/article/us-china-aid-idUSKBN0FF0YN20140710

  [10] Yun Sun, “The Domestic Controversy Over China’s Foreign Aid and the Implications for Africa,” Brookings Institution, October 8, 2015, https://www.brookings.edu/blog/africa-in-focus/2015/10/08/the-domestic-controversy-over-chinas-foreign-aid-and-the-implications-for-africa/

  [11] Arshad Mohammed, “Trump Plans 28 Percent Cut in Budget for Diplomacy, Foreign Aid,” Reuters, March 16, 2017, http://www.reuters.com/article/us-usa-trump-budget-state-idUSKBN16N0DQ

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