Kenneth Rogoff
Kenneth Rogoff, a former chief economist of the International Monetary Fund, is Professor of Economics and Public Policy at Harvard University and the recipient of the 2011 Deutsche Bank Prize in Financial Economics. He is the co-author (with Carmen M. Reinhart) of This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2011) and the author of the forthcoming book Our Dollar, Your Problem (Yale University Press, 2025).
CAMBRIDGE – While global attention is focused on US President Donald Trump’s policies toward Europe, China, and Russia, his impact on Africa and Latin America could be just as profound. My forthcoming book, Our Dollar, Your Problem, will likely resonate with emerging and developing economies, for which US policy has long been an inescapable force beyond their control.
In the book, I examine the dollar’s extraordinary postwar run and what its current strength tells us about the future of global finance. In the near term, calculated chaos seems inevitable. But while the effects of today’s strong dollar remain uncertain, the fallout from Trump’s policies – especially his retreat from America’s foreign-aid commitments – is immediate and far-reaching, with aid-dependent countries already feeling the strain.
Africa has been hit particularly hard. Department of Government Efficiency (DOGE) czar Elon Musk’s first target was the US Agency for International Development (USAID), which has served as the cornerstone of US foreign aid since the early 1960s. As one of the largest funders of global health initiatives – from anti-malarial drugs to AIDS treatments – USAID has played an indispensable role in improving public health across the developing world.
Although USAID programs are not without flaws, the agency’s $40 billion budget – less than 1% of federal spending – has provided a cost-effective way to help the world’s poor and advance US interests. The abrupt and unexpected funding cuts to hospitals and aid projects are not only cruel and reckless but also undermine America’s credibility, especially among African countries.
The decision to shut down USAID rather than overhaul its funding priorities makes little sense. Trump has justified his push to cut off aid to South Africa by citing alleged anti-white bias in land confiscations, echoing Musk’s claim that the country has enacted “racist ownership laws.” While South African governance has long been a mess, it’s hard to see how abruptly cutting targeted aid to the world’s most vulnerable populations will lead to meaningful improvements.
If the US were the only country cutting its foreign-aid programs, things would be bad enough. But Trump’s insistence that Europe starts paying for its own defense – an entirely reasonable demand – will almost certainly push European governments to redirect funds away from foreign aid to protect their generous welfare systems. British Prime Minister Keir Starmer has already announced aid cuts to boost defense spending to 2.5% of GDP by 2027.
There is little doubt that China will rush to fill the vacuum. Despite its own economic problems, China remains deeply committed to expanding its access to Africa’s vast natural resources. In fact, its ongoing economic slowdown will probably drive the Chinese government to gain an even stronger foothold on the continent.
The outlook for Latin America is somewhat brighter. Admittedly, the Trump administration’s policy toward the region has been erratic at best. In addition to attempting to re-establish US control over the Panama Canal and telling Mexico that the US is not bound by the free-trade agreement he himself negotiated during his first term, Trump’s global tariff war poses a significant threat to Latin American economies.
But there is a silver lining, as Trump’s return to the White House may signal a broader global shift to the right. While the necessity of such a change in developed economies is debatable, it is long overdue in Latin America. The region’s largest economies – Brazil, Mexico, and Argentina – have served as a playground for left-wing economists for much of the twenty-first century, particularly in recent years. The results have been disastrous. Latin America’s chronic failure to generate sustained economic growth over the past four decades has severely constrained governments’ ability to provide basic education and health care, let alone more ambitious goals like guaranteed income.
Brazil is a prime example. During his first presidency (2003-11), Luiz Inácio Lula da Silva benefited from a commodity boom and pursued relatively conservative macroeconomic policies. But in his current term, his administration has struggled to rein in public spending and control inflation. Lula has also repeatedly clashed with Brazil’s central bank over its interest-rate hikes, even as the country’s currency fell to record lows.
Argentina is a rare bright spot. Since taking office in December 2023, libertarian President Javier Milei has managed to lower inflation from 211.4% to 84.5%, with some private forecasts suggesting an annual inflation rate as low as 23% in 2025. He has also stabilized the economy after a brief period of austerity, reduced the size of the government, and eliminated the budget deficit – something even previous conservative governments failed to achieve. Milei’s early success offers real hope that Argentina may finally break free from its cycle of economic mismanagement.
While many American progressives bristle at Milei’s close relationship with Trump, their alliance is understandably celebrated in Argentina. After all, when has a US president – and a significant portion of the American electorate – expressed such admiration for a Latin American leader? US backing could bolster Milei’s regional standing, potentially catalyzing a broader shift away from Latin America’s failed socialist experiments and ushering in an era of greater economic stability.
