Integrating Aid and Statecraft: Lessons from Australia’s DFAT Model for the State Department

The Trump administration’s dismantling of the US Agency for International Development, cancellation of most foreign assistance activities, and merger of remaining functions into the State Department reflect a broader trend among bilateral donors. Over the past 15 years, Australia, Canada, and the UK have all merged once independent aid agencies into their ministries of foreign affairs. While their exact motives vary, there is one constant: a desire to more closely link foreign assistance with foreign policy. US Secretary of State Marco Rubio has made it clear from the beginning of this administration that this is likewise the motivating factor for merging USAID into the State Department.

Australia’s experience merging AusAID into its Department of Foreign Affairs and Trade (DFAT) offers important lessons for the US, as I set out in a new case study. The US merged its foreign assistance functions into the State Department with little apparent forethought and without the strategic framework that ultimately allowed DFAT to recover from a similarly rocky start. Significant gaps remain in the State Department's capacity to implement its new foreign assistance mission, and unless they are addressed, the administration is unlikely to achieve its objectives.

Australia's experience suggests four practical lessons for the State Department, Congress, and the administration. But the harder question—for this administration and whatever follows it—is not where foreign assistance sits organizationally, but whether the United States preserves the development capacity to serve its strategic interests.

A rocky transition and course correction

In 2013, the government of then-prime minister Tony Abbott decided to merge AusAID into DFAT. At the time, there was a sense that Australia was losing influence in the core regions that drive its foreign and security policy: the Pacific Islands and Southeast Asia. China was seen as a rising threat through its infrastructure financing, deepening diplomatic relations, and attempts to negotiate security relationships with several Pacific Islands.

The Australian government’s initial efforts at integration were messy, with the loss of development expertise, institutional culture clash between former AusAID and DFAT practices, an increased focus on short-term political outcomes rather than long-term development impact, and operational challenges around budget, procurement, and evaluation.

By 2016, there was a growing recognition within the Australian government that the merger was not achieving its strategic goals, hampered by organizational, institutional, and cultural barriers. Successive governments sought to effect changes that would enable a better-integrated DFAT. This included organizational shifts by creating an Office of the Pacific as a whole-of-government coordinating body that brought together foreign assistance, diplomacy, defense, trade, and other tools to support Australian policy engagement in the Pacific. There was also a shift at the country level toward greater decentralization of decision-making by giving heads of mission the authority and institutional support to integrate the full toolkit of statecraft on the ground. A 2026 peer review by the OECD’s Development Assistance Committee (DAC) singled out Australia’s ability to coordinate aid, diplomacy, and defense through this whole-of-government architecture—particularly in regional crisis response—as a good practice that other DAC members can learn from.

Australia’s model now reflects what DFAT terms “deep integration” across four mutually reinforcing dimensions: policy, institutional, geographic, and programmatic. The Falepili Union with Tuvalu represents the furthest expression of this integrated model. The 2023 treaty provides Tuvaluans a pathway to Australian residency and labor market access in exchange for Australian primacy over Tuvalu’s security and foreign policy decisions, paired with harbor infrastructure in the outer islands financed by the Australian Infrastructure Financing Facility for the Pacific. The arrangement is transactional, but it addresses strategic and humanitarian interests simultaneously and serves as a more compelling template than earlier deal-making in the Pacific.

Four key lessons emerge from Australia’s experience:

1. Policy integration. DFAT treats development as a core foreign policy tool, with strategy documents framing development outcomes as instrumental to diplomatic and security objectives, while maintaining development logic at the program level.
2.  Institutional integration. Development staff are embedded across geographic and thematic divisions rather than in a parallel directorate, and career pathways are designed to reward hybrid expertise. The 2026 OECD-DAC peer review of Australia notes that this still remains a work in progress more than a decade after the merger, but DFAT has moved in the right direction.
3. Geographic integration. Australia concentrates its foreign assistance programming in the Pacific Islands and Southeast Asia. This has enabled DFAT to focus its efforts and reduce a drift toward overextension, strengthening the overall coherence of Australia’s approach to foreign assistance. That said, performance in Southeast Asia has been weaker, with Australian influence outpaced by China and the program lacking the resources to compete at scale.
4. Programmatic integration. Individual DFAT programs advance multiple objectives simultaneously, such as an infrastructure investment that supports trade, strengthens governance, and signals Australian presence.

Lessons for the US

The State Department’s January 2026 Agency Strategic Plan defines strategic assistance as advancing longer-term US interests through economic support, commercial ties, and infrastructure development. The framing is similar to DFAT’s approach to deep integration, but the State Department currently lacks the institutional architecture, personnel, expertise, and operational-level commitment to put the administration’s approach into practice.

There are, of course, important differences between the US and Australian examples. First, even with the administration’s cuts to the foreign assistance budget, the US remains a far larger donor than Australia. Second, the US system remains deeply fragmented, with foreign assistance and development finance functions scattered across multiple agencies, including the Millennium Challenge Corporation (MCC), the US Development Finance Corporation (DFC), the US Trade and Development Agency, and the State Department. Finally, even with a narrower vision for US foreign policy under this administration, the US will remain engaged across a broader set of regions and countries than DFAT.

With these caveats in mind, Australia’s experience points to four recommendations for the US:

1. The State Department should recognize development as its own career track and quickly move to rebuild the generations of expertise lost through USAID’s demise. Recent reporting suggests that the State Department is seeking to hire new staff largely through institutional support contractors rather than permanent civil or foreign service officers. Congress could play a role by requiring a strategic workforce plan to ensure appropriate levels of personnel and the right skill sets.

2. The State Department should develop country- and region-specific program designs with defined objectives, instruments, and metrics for measuring outcomes. The State Department has issued an Agency Strategic Plan and other official statements lay out the administration’s preferred approach to foreign assistance, but it needs to now translate this into action outside of Washington. The former Integrated Country Strategies that State developed with USAID could provide a starting point, but they were not designed to carry development objectives and will need to be redesigned to do so. Developing new planning capabilities at the country and regional level will also help State to better understand the resources they need outside of Washington to accomplish their objectives.

3. The State Department should develop more flexible financial instruments beyond grant-based foreign assistance. The fragmented nature of the US system means it will never approach what DFAT has achieved, but State should still look at how Australia has deployed budget support, catalytic capital to unlock private investment, other types of sovereign finance, and mechanisms to reduce risk exposure in infrastructure projects. Through its chairing of the MCC and DFC boards, the State Department could look to establish closer coordination and alignment with these two important entities.

4. Budget transparency and credible evaluation are important conditions for strategic assistance to function as more than rhetoric. The dismantling of USAID’s monitoring, evaluation, and learning function removed an important accountability mechanism for US foreign assistance. Traditionally, the State Department has lagged other agencies in its ability to properly evaluate outcomes from its assistance. Congress should require the State Department to develop credible monitoring and evaluation capability for the assistance it oversees. On the budget side, Congress should continue to seek greater transparency into how the State Department plans to spend appropriated foreign assistance funds. Aligning strategy, budget, and performance will be critical to demonstrating progress toward the goals and objectives set forth in the Agency Strategic Plan.

Looking ahead

There is a robust debate about what might come after the Trump administration. Given the organizational destruction, it’s not surprising that a lot of energy is being devoted to determining which organizational structure is best suited for future administrations. Not surprisingly, many favor recreating an independent aid agency to right what they see as the wrongs of the Trump administration. Others counter that recreating an independent aid agency—even one fundamentally different from USAID—will require a huge political effort. There are a few important things to keep in mind.

First, foreign assistance has always been a tool of US foreign policy, regardless of the criticisms leveled by the current administration. But foreign assistance alone will not set the country's future direction; that will turn on broader strategy. A new administration may instead want to return to a more positive vision of US global engagement. This may mean that foreign assistance and development would play a more active role. Ultimately, form should follow function; this administration wants the US to be less globally engaged and to pursue a narrower set of more selfish objectives abroad. By their logic, the organizational structure of foreign assistance at the State Department makes sense.

Second, stakeholders should not view this as a binary choice between full merger into the State Department and the return of an independent aid agency. There is a spectrum of experiences, including those of Japan and Korea, which have strong policy direction from their ministries of foreign affairs and then implementing agencies (JICA and KOICA). This could offer one possible model: a State Department that sets policy and strategic direction while a separate implementing entity is reconstituted with the appropriate program management, sectoral, and evaluation capabilities. This is but one example. As US policymakers wrestle with what comes next, they should consider a spectrum of options.

Whatever structure emerges from that debate, the deeper question is not organizational at all: it is whether the United States retains the development capacity to advance its strategic interests at all. As Australia’s experience with merging AusAID into DFAT shows, maintaining that capacity is not a given, but it is critical.