Almost every observer would argue that the U.S. foreign assistance architecture in place up until January 20, 2025, needed a major shakeup. In recent months, the Trump administration has undertaken significant reforms at the United States Agency for International Development (USAID), and as a result, less than 20 percent of its programs continue. In early March, Secretary of State Marco Rubio announced that these programs would be administered by the U.S. Department of State, effectively merging what remained of USAID into the Department of State. The move seeks to more closely align development assistance with U.S. foreign policy goals of making the United States safer, stronger, and more prosperous.
This action is not without precedent. In the last three decades, many Western democracies have combined their aid agencies into their foreign ministries with varying degrees of success. Like other donors, U.S. foreign assistance serves as a tool to advance the United States’ own enlightened self-interest. By helping countries meet their development needs, the United States simultaneously furthers its own foreign policy objectives. During the Cold War, U.S. foreign assistance was intricately tied to its primary foreign policy aim of the time, combating the spread of communism around the world.
Although the United States is no longer in a Cold War, it remains at a critical junction in terms of its geostrategic competition with China. U.S. foreign assistance still serves as a tool to advance the United States’ enlightened self-interest. The world has evolved, and foreign assistance must adapt accordingly. If done correctly, reform is valuable. However, with such a merger, there are risks, including eliminating the expertise of USAID, making minor improvements, and losing the trust of U.S. partners on the ground. As the administration undergoes this exercise, it should take seven key considerations into account to manage the risks and maximize the success of the merger.
1. Learn From the Experience of U.S. Allies
Indeed, the move by the Trump administration to merge USAID into the Department of State follows the path of the vast majority of donor countries. Denmark, Australia, the United Kingdom, and Canada have, in past decades, combined their aid agencies with their foreign affairs ministries. Comparing the roadmaps and strategies used by allies during their merger processes is crucial for setting realistic expectations, identifying priorities, and establishing a feasible timeline.
Denmark merged its Danish International Development Agency into its Ministry of Foreign Affairs in the 1990s to raise the profile of foreign assistance as a tool to advance their foreign policy. Its success is rooted in the design, efficiency, and flexibility of each agency, as well as being “grounded on a solid legal and institutional foundation.” Similarly, in 2013, Australia merged its aid agency into the Department of Foreign Affairs and Trade to address trade and security challenges. The merger faced challenges including the loss of expertise, deteriorating preparation and management systems, and a lack of clear strategic direction.
Canada, which also merged its agencies together in 2013, saw increased efficiency but also faced concerns over the ability to enact long-term development strategies and internal political disagreements. The United Kingdom merged its Department for International Development with the Foreign and Commonwealth Office in September 2020 to create the Foreign, Commonwealth and Development Office to better align with the United Kingdom’s goals and ensure “maximum value” for taxpayers. However, the merger lacked consultation, preparation, and clear direction, resulting in staff losses, budget cuts, and the abrupt termination of key projects. Although the merger limited the United Kingdom’s management capabilities, it improved the accountability and visibility of foreign aid.
While lessons can be drawn from U.S. allies’ experiences, the U.S. experience differs significantly in the scale, scope, and complexity of USAID’s work. Australia and the United Kingdom merged functional bureaucracies that were already tightly integrated with foreign policy, while the United States is not merely merging two functioning entities but is instead absorbing, rather than integrating, the remains of USAID into the Department of State. Other countries also had far less extensive on-the-ground presence than USAID, making direct comparisons delicate. Lessons can also be drawn from merger cases in the private sector, but the U.S. situation presents a unique set of challenges that require careful consideration.
2. Define What a Successful “Merger” Looks Like
One lesson from prior experiences is the importance of detailed planning. While reforming USAID and increasing efficiency in foreign assistance is valuable, any merger should be well-planned and structured, rather than follow the path of an abrupt transition. The process must be grounded in a strategic vision to ensure that U.S. foreign aid remains effective, impactful, and aligned with national security interests.
If thought of as a spectrum, the three main models of a “merger” are consolidation (that is absorbing USAID into the Department of State as one entity, on the model of the U.S. Food and Drug Administration within the U.S. Department of Health and Human Services), disbursal (distributing the responsibilities and funds of USAID’s bureaus across the Department of State or other agencies), and take-over (maintaining a separate but affiliated agency with interlocking or “dual-hatted” leadership).
Thus far, the Trump administration appears to have endorsed a consolidation approach. However, there has to be a clear vision for how USAID will integrate into the Department of State and how it will support U.S. foreign policy goals. Developing this vision is critical. This needs to be coupled with intensive attention to the details of integrating people, processes, and technology.
3. Adopt a Whole-of-Government Approach to Foreign Assistance
Currently, policy and delivery concerning U.S. foreign assistance are fragmented across the federal government, with at least 20 agencies involved. USAID has historically functioned as an independent agency with direct oversight of Congress and the Department of State over foreign aid programs. As the merger with the Department of State takes shape, it would be important to adopt a whole-of-government approach to foreign assistance across the U.S. federal structure.
A centralized structure within the Department of State to set policy and budgetary allocations for all of the U.S. foreign assistance across agencies would be ideal. Without strong leadership within the Department of State, the merger could dilute accountability, leading to fragmentation and inefficiencies in fund allocation.
To begin, the designation of interlocking leadership for Millennium Challenge Corporation (MCC), the U.S. Trade and Development Agency (USTDA), and the Development Finance Corporation (DFC) would ensure that these agencies do not work in silos, communicate with each other, and have more centralized oversight of their activities.
Next, with support from the White House, the Department of State, the Office of Management and Budget (OMB), and the National Security Council (NSC) could enforce coordination and discipline in the planning and spending of foreign assistance in two ways: First a joint OMB-NSC committee could review the international components proposed for inclusion in the annual president’s budget request from all federal departments and agencies alongside the budget proposals from the Department of State, the MCC, the DFC, and USTDA. Then, after the president signs appropriation legislation, the same group should make decisions about apportioning those funds and map out the interagency transfers permitted under the Foreign Assistance Act and other statutes that could maximize efficiency and impact.
Finally, to drive the application of the president’s foreign policy strategies consistently in the execution of these budgets, the administration could detail political appointees from the Department of State to fill the international leadership roles across government, all of whom could report to the director of foreign assistance.
This whole-of-government approach also should apply to U.S. embassies abroad. Foreign assistance cannot be managed on a day-to-day basis from Washington. The complete loss of USAID’s field presence, with professionals who have skills that few diplomats can replicate, could weaken U.S. leverage in strategic regions. The administration should think about how it can maintain and shape the expertise and technical capacity of USAID, especially in the field. Embassies will need a dedicated, interagency team of technical experts, contracting/agreement officers, and program managers, co-located and managed under a unified command structure.
4. Evaluate the Purpose, Scope, and Placement of the Humanitarian, Health, and Development Functions
This reform will allow the Trump administration to renegotiate the thicket of directives (known as “earmarks”) that hamper decisionmaking about foreign assistance. During the past 30 years, the unchecked growth of congressional earmarks and directives in the foreign assistance budget (also known as the “150 account”) has resulted in the allocation of the majority of USAID’s annual appropriations into only a few sectors, at the detriment of others. Of the $35 billion obligated by USAID in 2024, 60 percent went to humanitarian and health assistance, while the remaining 40 percent was divided into economic development, peace, democracy, and education programs. This has limited the ability of the United States to “flexibly adapt assistance to changing contexts” and reduced funding for programs that contribute to economic development.
In addition, agencies in the U.S. foreign assistance architecture—including MCC and DFC—also provide complementary programs and could accompany this transformation but are underfunded. By upgrading these agencies, the United States could better respond to developing countries’ needs and U.S. foreign policy goals. As the DFC is up for reauthorization later this year, Congress should multiply the DFC’s operational capacity by increasing its credit limit from the current $60 billion to $120 billion. In the same vein, the MCC still has an annual budget that is less than $1 billion, the same as 20 years ago, and needs revised authorities to better respond to the changing global landscape.
Moreover, given that much of USAID’s technical management and contract oversight functions and people have been terminated, the administration should reconstitute the ability to effectively run the program cycle, including issuing and managing grants and contracts. Neither the Department of State nor the DFC currently has this capability, but MCC does.
Looking ahead, several key issues to consider are:
Which specific sectors match the comparative advantage of the United States, align with U.S. foreign policy objectives, and are demanded by the governments and private sector in the countries the United States assists?
Which humanitarian, health, and development programs are essential and should continue?
If economic development is shifted to the DFC and MCC, how can the United States ensure the transition of that technical expertise?
How can the United States induce national governments to coinvest in these programs?
Can Congress agree to eliminate or reduce directives in the 150 Account?
5. Prioritize Financing Tools Beyond Grants
Historically, the U.S. government has delivered foreign assistance primarily in the form of grants and contracts managed by nongovernmental organizations and for-profit companies. Other donors (such as Australia and Canada) have adopted flexible financing approaches that encourage local investment and accountability. Going forward, foreign assistance could be delivered in new modalities to increase impact and avoid dependency on aid:
Government-to-government agreements with specific countries (using a model such as the MCC’s compacts) to increase national country ownership, cofinancing, and accountability.
Concessional loans and risk-mitigation tools (such as guarantees and political-risk insurance) to leverage private capital and increase country accountability.
Investment-driven approaches, such as enterprise funds and development-impact bonds that catalyze private capital with quantifiable results and returns to U.S. taxpayers.
Public-private partnerships to leverage private sector investment.
Blended finance models that combine government aid with commercial capital.
Consulting fees for technical expertise, charged by implementers to countries that respond to country needs.
Matching funds and coinvestments, from implementing partners and national governments, to increase accountability and minimize taxpayer funding.
6. Prioritize Transparency and Accountability
Introducing more precise tracking mechanisms for disbursements can help ensure effective fund utilization, enhance the Department of State’s accountability, and integrate emerging technology into foreign assistance operations. This approach streamlines fund distribution, enables secure and fast payments, and improves humanitarian aid delivery in challenging environments. For example, there is a valuable opportunity to leverage blockchain technology not just to track foreign assistance, but to make it more efficient, transparent, and accountable. In addition, the use of AI, satellite imagery, and mobile applications allows for more timely collection of data to guide decisions, evaluate results, and design better programs in the future.
In addition, reforms should include making foreignassistance.gov more robust by publishing data on each award, including contract and grant documents, using technology to track spending, and investing in impact assessments and randomized controlled trials to determine which interventions are working the best.
In this respect, USAID’s distinct program design, monitoring, and evaluation skills might not transfer effectively to the Department of State, especially without the retention of USAID staff with expertise in these areas.
7. Consider Innovative Modalities to Deliver Foreign Assistance More Effectively
Despite many achievements, one of the biggest criticisms of U.S. foreign assistance is that it does not deliver impact. Many stakeholders have been clamoring for procurement reform within USAID to make the delivery of foreign assistance more agile, innovative, and responsive to the needs of partner countries. The current system places too much focus on bureaucratic processes and activities, rather than on measurable results. The Trump administration has a historic opportunity for improvement that will benefit both the citizens of implementing countries and the United States.
The majority of the money that USAID spends goes through assistance and acquisition mechanisms, including grants, cooperative agreements, and contracts. This business model has allowed large contractors, multilateral organizations, and international nongovernmental organizations—collectively known as “implementing partners”—to play an oversized role in delivering U.S. aid. Defenders of this model argue that losing this capacity would severely weaken U.S. foreign assistance efforts and undermine the transparency and accountability of the funds to U.S. taxpayers. Critics contend that this approach gives too much power to a small group of organizations that favor “compliance over performance” and leaves smaller, local organizations out of the picture.
The general business model, reliant on implementing partners, does not allow for country-level ownership of the program and results. If money is disbursed via grants and contracts through implementing partners, national governments do not have “skin in the game” and political buy-in. Direct transfers to governments, or “budget support,” bypass these “middlemen,” both local and international. However, there is fear that this modality would lead to increased corruption, inefficiencies, and potential misuse of funds by developing country governments.
In addition, most U.S. foreign assistance programs do not include an exit strategy or graduation process to ensure sustainability once the United States exits. Critics of foreign assistance point out that this model leads to money flowing ad perpetuum. Under the first Trump presidency, breaking this dependency was the vision for USAID, encapsulated in the “Journey to Self-Reliance” concept. That is, foreign assistance is a tool to help partner countries achieve sustainable development and ultimately end their need for it. Under Biden, USAID has attempted to shift its operations through a localization agenda.
Reforms to improve the delivery of aid could include the following:
Changing instruments from cost-reimbursable to the use of pay-for-results and fixed-price tools that shift risks to implementing partners and link the disbursement of funds to the achievement of concrete results, instead of rewarding implementers for hours worked.
Simplifying procurement processes and requirements to allow for smaller organizations based in low- and middle-income countries to bid for and win competitions to manage programs.
Improving the tracking and disclosure of funding commitments versus disbursements, to ensure programmatic goals are met, and money is properly used (for example, in the case of sub-awards).
Incorporating more buy-in and coinvestment from the governments of implementing countries, including a financial and programmatic exit strategy for every program.
Forging A Path Forward
The Trump administration views the potential merger of USAID into the Department of State as a critical measure that will meet its stated objective of making the United States safer, stronger, and more prosperous. As the United States works to maintain U.S. influence on the global stage, getting this merger right is paramount. The U.S. government must avoid hasty cuts that could have far-reaching strategic consequences. This process requires careful consideration and the design of a more strategic, planned approach to foreign assistance reform. In an increasingly fragmented and contested global landscape, the United States cannot afford to stumble at the final hurdle.
Daniel F. Runde is a senior vice president, director of the Project on Prosperity and Development, and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies in Washington, D.C.
The author would like to thank Romina Bandura for her research assistance. Six anonymous reviewers contributed to earlier drafts.