Howard Lutnick urges converting part of US foreign aid into American equity investments for national growth

In an era of escalating fiscal pressures and geopolitical uncertainties, a provocative policy idea has gained traction: reallocating portions of the United States’ substantial foreign aid budget into domestic equity investments that directly benefit American citizens. This approach could transform taxpayer dollars from overseas disbursements into a national wealth-building mechanism, potentially fostering long-term economic resilience and reducing reliance on traditional aid models.

The Scale of US Foreign Aid and Its Opportunity Cost

The United States allocates billions annually to foreign aid, with figures from the Pew Research Center indicating that fiscal year 2023 saw $71.9 billion expended, representing about 1.2% of total federal spending. This aid, managed through agencies like USAID, supports development, humanitarian efforts, and strategic interests abroad. However, critics argue that in a time of domestic economic challenges—such as persistent inflation and widening wealth gaps—these funds could be redirected to generate returns for the American public.

Imagine channelling a fraction of this budget into a sovereign-style investment fund focused on equities. Countries like Norway have long demonstrated the efficacy of such models; Norway’s Government Pension Fund Global, seeded with oil revenues, invests in global stocks and bonds, delivering dividends that bolster national welfare. A US equivalent might prioritise investments in American companies, infrastructure, or innovation-driven sectors, aiming to compound wealth over decades.

Potential Mechanisms for Equity Allocation

One conceivable framework involves establishing a public investment vehicle where redirected aid funds purchase stakes in blue-chip equities or exchange-traded funds (ETFs) tracking broad market indices. This could mirror aspects of the America First Investment Policy outlined in White House memoranda from early 2025, which emphasised prioritising domestic economic interests over unfettered foreign commitments. By converting aid outflows into equity holdings, the government could create a portfolio that generates dividends, with proceeds potentially distributed as citizen dividends or reinvested in social programmes.

Analyst models suggest modest but meaningful impacts. For instance, if 20% of the 2023 aid budget—roughly $14.4 billion—were invested in a diversified equity portfolio yielding an average annual return of 7% (based on historical S&P 500 performance from 1957 to 2023), it could grow to over $20 billion in five years, assuming compounding without withdrawals. Such forecasts, derived from long-term market data, underscore the compounding power of equities over grants that offer no financial return.

• Taxpayer Returns: Equity investments could provide a hedge against inflation, with historical data showing US stocks outperforming fixed-income assets over multi-decade horizons.
• Economic Multipliers: Domestic investments might stimulate job creation in sectors like technology and manufacturing, aligning with policies that have already attracted over $1 trillion in private sector commitments to clean technology and manufacturing, as noted in White House reports from 2024.
• Risk Mitigation: Diversification across sectors would be essential, drawing lessons from past market downturns, such as the 2008 financial crisis, where broad indices recovered within years.

Challenges and Critiques of the Shift

Detractors highlight potential pitfalls. Foreign aid often serves diplomatic and security purposes, as detailed in Brookings Institution analyses from 2019, which debunk myths around aid’s inefficacy while stressing its role in global stability. Abruptly curtailing aid could strain international alliances, particularly with developing nations or strategic partners recovering from conflicts.

Moreover, equity markets introduce volatility. The 2022 bear market, when major indices fell over 20%, illustrates the risks of tying public funds to stock performance. Sentiment from credible sources, such as a 2025 Sidley Austin insight on the Trump Administration’s investment policy memorandum, expresses caution over extending restrictions to private equity and venture capital, warning of unintended barriers to capital flows.

A balanced approach might involve phased implementation, starting with non-essential aid categories. Historical precedents exist; a 1970 Foundation for Economic Education article contrasted foreign aid with investment, arguing that the former perpetuates dependency while the latter fosters self-sufficiency—a principle that could apply domestically.

Comparative Global Perspectives

Other nations offer blueprints. Singapore’s Temasek Holdings, a state-owned investment firm, manages a portfolio exceeding $300 billion as of 2023, investing in equities to support national development. Similarly, the China Investment Corporation channels foreign reserves into global assets, blending public funds with market discipline.

In the US context, this could evolve into a “citizen equity fund,” where individuals receive notional shares or benefits tied to fund performance. Oxfam’s 2021 guide to foreign aid notes that such assistance constitutes less than 1% of the federal budget, yet reallocating even a portion could amplify domestic prosperity without fully dismantling international commitments.

The table above illustrates hypothetical reallocations based on 2023 data from Pew Research and analyst projections for 2024, highlighting growth potential. These figures are model-based and assume stable market conditions.

Broader Implications for Policy and Markets

Adopting this equity-for-aid paradigm could reshape fiscal policy, encouraging a more investment-oriented government stance. It aligns with sentiments in a 2015 Guardian piece advocating for aid as “foreign public investment” rather than charity, a view echoed in recent US Mission statements from 2025 that frame aid as an investment expecting returns.

Market implications are intriguing. Increased public equity purchases might bolster demand for US stocks, potentially elevating valuations in key sectors. However, as a 2025 American Conservative article suggests, this could form part of a “grand bargain” trading pro-growth policies for aid reforms, balancing fiscal conservatism with economic nationalism.

In conclusion, redirecting foreign aid into equity investments represents a bold reimagining of public finance. While not without risks, it could harness market forces to build generational wealth for Americans, turning outflows into inflows that strengthen the domestic economy. As global dynamics evolve, such innovative policies may prove essential for sustaining US leadership.

References

• Pew Research Center. (2025, February 6). What the data says about US foreign aid. https://www.pewresearch.org/short-reads/2025/02/06/what-the-data-says-about-us-foreign-aid/
• Brookings Institution. (2019). What every American should know about U.S. foreign aid. https://www.brookings.edu/articles/what-every-american-should-know-about-u-s-foreign-aid/
• White House. (2025, February). America First Investment Policy. https://www.whitehouse.gov/presidential-actions/2025/02/america-first-investment-policy/
• Sidley Austin. (2025, March). Trump Administration America First Investment Policy Memorandum. https://sidley.com/en/insights/newsupdates/2025/03/trump-administration-america-first-investment-policy-memorandum
• Foundation for Economic Education. (1970). Foreign Investment vs. Foreign Aid. https://fee.org/articles/foreign-investment-vs-foreign-aid/
• The Guardian. (2015, August 5). Aid should be seen as foreign public investment, not just charity. https://www.theguardian.com/global-development/2015/aug/05/aid-should-be-seen-as-foreign-public-investment-not-just-charity
• Oxfam America. (2021). Foreign Aid 101. https://www.oxfamamerica.org/explore/research-publications/foreign-aid-101/
• United States Mission to the UN Agencies in Rome. (2025). Making Foreign Aid Great Again. https://usunrome.usmission.gov/making-foreign-aid-great-again
• Harvard Law School Forum on Corporate Governance. (2020, April 13). Issuance of equity to the US government in exchange for aid: Considerations for boards. https://corpgov.law.harvard.edu/2020/04/13/issuance-of-equity-to-the-us-government-in-exchange-for-aid-considerations-for-boards/
• China Ministry of Foreign Affairs. (2024, April 20). https://www.mfa.gov.cn/eng/wjbxw/202404/t20240420_11285450.html
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