“Unleashing the Power of America’s Private Sector”: U.S. Development Policy and Sustainable Development Financing

[Bernadette Lumbela is a Research Fellow at the Max Planck Institute for Comparative Public Law and International Law in Heidelberg]

The Trump administration’s shifts in U.S. foreign economic policy have had far-reaching global effects. While many countries have felt the impact of tariffs, two measures are particularly concerning for countries with lower income: cuts to USAID (United States Agency for International Development) and the tax on remittances under the “Big Beautiful Bill”. By constraining vital financial inflows, these policies may compel lower-income countries to seek alternatives. A likely outcome is increased reliance on foreign direct investment (FDI), which is cross-border investment by an individual or corporation in an enterprise located in another country with the intent to establish a lasting interest and significant control —a trajectory that could reshape development for lower-income countries (see here on the use of this term) while diverging from the principles of sustainable development financing established in international law.

Sources of Foreign Income

Remittances, official development assistance (commonly known as foreign aid) and FDI are widely recognized as important, if not primary sources of foreign income for many lower-income countries, while domestic resources are often inadequate. Remittances, which is money sent by migrants to their family or home country, can make up a significant portion of a nation’s GDP. Foreign aid, i.e. government-provided financial assistance, often plays a critical role in supporting infrastructure, healthcare, education, and poverty alleviation in many lower-income nations. However, what are the implications when these two financial pillars—remittances and foreign aid—are curtailed or reduced? I argue here that in such circumstances, governments in lower-income countries are likely to intensify efforts to attract foreign direct investment as a means of compensating for the decline in external revenue streams, often by offering incentives or deregulating markets to appeal to international investors. 

Sustainable Development Financing in International Law

FDI may be an important tool for financing sustainable development, as acknowledged in the Addis Ababa Action Agenda (2015 Agenda), a soft law instrument on financing development, which is an integral part of the United Nations’ Sustainable Development Goals 2015-2030 (2030 Agenda).

The positive effects of FDI for lower-income countries are disputed. FDI may contribute to economic growth and, in certain circumstances, to sustainable development. In this regard, the 2015 Agenda refers to know-how and technology, as well as linkages with foreign suppliers. However, it is not without reason that the 2015 Agenda also emphasizes multiple strategies for lower-income countries to generate foreign income and does not rely on FDI alone. Similarly, the 2030 Agenda has stressed the need for diverse sources of financing. Research has indicated that FDI tends to crowd out domestic investment in lower-income countries, i.e. it may lead to foreign firms dominating the local markets. FDI may also lead to an increase in the depletion of natural resources, having a negative effect on sustainable development.

Importantly, to attract and retain foreign direct investment, governments may be under pressure to adopt policies that favour foreign corporations, sometimes at the expense of local priorities. These measures may include tax breaks, deregulation, weaker labour protections, or relaxed environmental standards or poor working conditions. For example, many states designate Special Economic Zones, where taxation and tariffs are reduced, in an effort to attract foreign capital. Furthermore, FDI is typically concentrated in production-oriented industries such as mining, manufacturing, or infrastructure, and it does not usually advance overall economic growth or the development of health, education, housing, sanitation, or infrastructure outside of these project sites. These downsides to FDI may stand in stark contrast with the aims of the 2030 Agenda, which envisioned fiscal, wage and social protection policies to achieve greater equality.

However, to paint the whole picture, neither remittances nor foreign aid can be viewed as perfect solutions in comparison to FDI. They too have their own limitations. Remittances may constitute a large share of a country’s GDP, but they operate primarily at the household rather than structural level, as acknowledged in the 2015 Agenda. While they provide significant support to the families and communities of migrant workers, they rarely lead to systemic improvements in infrastructure, healthcare, or education. Foreign aid is often designed to address these gaps by funding governments and non-governmental organisations to promote structural change. However, aid can also serve as an instrument of political and economic influence, with donor states attaching conditions that constrain the policy autonomy of recipients.

“Unleashing the Power of America’s Private Sector” in Lower-Income Countries

With reductions in U.S. foreign aid and higher taxes on remittances potentially pushing lower-income countries to compete for foreign direct investment, one might question whether a political agenda underlies this policy shift. The Mandate for Leadership Agenda, the policy blueprint developed by conservative organizations to guide a potential second Trump administration, commonly referred to as Project 2025, offers an answer in its chapter on USAID. In the Agenda, the purpose of USAID is defined explicitly in terms of advancing national economic interests: “the agency promotes American prosperity through initiatives that expand markets for U.S. exports; encourage innovation; create a level playing field for U.S. businesses […]”. The document envisions a future administration that would “unleash the power of America’s private sector to advance our interests” through the strategic deployment of private capital investment in lower-income economies, which it also identifies as the principal driver of job creation and sustainable economic growth in these countries. This approach situates U.S. development policy within a framework of commercial diplomacy, in which “aid” functions primarily as an instrument for promoting U.S. business engagement abroad. In the African context, this is exemplified by the emphasis on facilitating U.S.–African business relationships and expanding Prosper Africa, an initiative launched under the Trump Administration to “bring together services from across the U.S. Government to help companies and investors do business in U.S. and African markets.” 

A similar vision is articulated for Latin America. The Agenda proposes focusing resources on strengthening the institutional foundations of free-market economies, including labour and pension reforms, reducing taxes, and promoting deregulation in the respective countries. This suggests that the risks associated with FDI, particularly regarding the erosion of labour protection frameworks, are not merely an unintended by-product of Project 2025 development policy reforms, but may in fact be an intended outcome. In this formulation, “America First” is an overhaul of U.S. involvement in lower-income countries to serve domestic economic interests through market-oriented reforms and the expansion of private-sector investment. While foreign aid and remittances (which could instead be spent domestically) offer little direct benefit to the U.S., FDI can provide tangible gains for U.S. businesses, for example through access to natural resources or lower labour costs.

Consequences: From Aid to Extraction

Both the 2015 Agenda and the 2030 Agenda emphasize the importance of domestic resource mobilization, which must be supported by international efforts. Among the three primary sources of these international efforts in the form of foreign income—foreign aid, remittances, and foreign direct investment—none appear to offer an ideal mechanism for financing sustainable development as envisioned by the 2030 Agenda. Yet, the U.S. Government’s recent decisions to reduce and restrict two of these sources, foreign aid and remittances, may push lower-income countries toward greater reliance on FDI, reflecting the strategic objectives of Project 2025. While such a development policy may benefit U.S. businesses and investors, it carries significant risks: lower-income countries may feel pressured to lower taxes, weaken labour protections, or relax environmental standards to attract investment. These are outcomes that run counter to the sustainable development goals articulated in the 2030 Agenda. Unsurprisingly, this illustrates that U.S. development policy is now structured primarily to advance U.S. economic interests, not only by reducing expenditures through budget cuts, but also by actively promoting U.S. business investment as a key source of revenue. 

This change of approach is already evident in practice in the case of Mozambique. While certain U.S. aid programs for Mozambique were maintained, broader cuts to foreign aid have severely affected a country already grappling with economic collapse, outbreaks of mpox, tropical storms and droughts, and ongoing armed conflict. At the same time as the cuts to development aid, the U.S. Export-Import Bank, a government agency, approved a 4.7 billion dollar loan to a fossil gas project in Mozambique operated by the French corporation TotalEnergies. Many of the project’s contracts were awarded to U.S. companies, a major factor in the approval of the loan, which was supported by the Trump Administration and welcomed by Mozambican government officials. The operation of the plant has been linked to environmental damage and serious human rights abuses, including abductions, sexual violence, and killings of civilians by military personnel associated with the facility. This case illustrates how current policy prioritizes U.S. economic interests over local welfare and human rights, while diverging sharply from the principles of development cooperation in international law. 

In general, careful attention should be paid to the shifting contours of what now passes as “development policy” – particularly as European states, too, resist debt relief for lower-income countries while simultaneously  dismantling the financial commitments to sustainable development.