The traditional aid model is undergoing a fundamental shift. Development cooperation, once framed as a moral obligation, is increasingly being viewed through the prism of self-interest, guided by factors such as national security, migration, supply chain resilience, and trade policy. The recent dismantling of the US Agency for International Development (USAID) signals a clear departure: the Western-led humanitarian model is giving way to a transactional approach explicitly designed to serve national interests, a trend shared by several EU countries and the United Kingdom.

Recent developments present an opportune moment to reconsider the traditional model, particularly in the context of North-South trade relations. The challenge is to reframe development assistance not as a unilateral transfer, but as a strategic instrument aligned with the interests of both donors and recipients. One promising area for cooperation lies in managing labour market disruptions that invariably accompany trade liberalization, new trade pacts, or external shocks.

Given the above, this article first highlights current trends and the need to rethink development assistance. It then articulates why Global North countries should care about the distributional costs that trade policy choices impose on the South. Drawing on our recently published paper, it concludes by recommending novel legal frameworks that balance transactional approaches with mutual economic gains while addressing distributional challenges.

The traditional aid model is losing public support in both donor and recipient countries. Donor nations (mostly Western economies), witnessing a growing trend of economic nationalism, are prioritizing domestic interests over foreign aid commitments. Recipient countries, on the other hand,  increasingly view aid as a transactional tool used by donors to advance their own political and economic agendas, often impinging on sovereignty.

This shift is reflected in sharp expenditure cuts across major donors. The UK is reducing aid from 0.5 to 0.3 percent of gross national income by 2027, its lowest share since 1990. France has deferred its legally binding 0.7 percent UN target to 2030. Similar trends are observed in Germany, Belgium, and Sweden. Overall, G7 countries are cutting aid by 28 percent in 2026 compared to 2024, their largest drop since the group was formed in 1975.

These trends are accompanied by a growing consensus in donor countries that the old donor-recipient paradigm must be rethought and replaced with strategic investments that yield mutual benefits. The US has articulated its global development policy of “trade over aid,” which some also refer to as the “New Washington Dissensus,” signalling a move away from direct aid in favour of increased trade led by private companies. Unlike the traditional framework, which purportedly created dependency, inefficiency, and corruption, this new paradigm aims to lower barriers to capital, drive foreign investment, and create jobs, not dependencies.

Given this clear shift towards a more transactional development agenda, policymakers face a critical challenge: rethinking and redesigning aid mechanisms within North-South trade relations. The goal must be to craft frameworks that are politically acceptable, economically sustainable, and mutually beneficial for all partners. One such area, which remains underexplored in this context, concerns the distributional consequences of North-South trade agreements or deals.

Labour markets are invariably disrupted following changes in trade policies linked to sudden tariff changes, import surges, trade deals, or shifts in export patterns. The consequent churn in the labour market, known as trade-related labour adjustment, reallocates workers from declining import-competing industries to sectors with comparative advantage (e.g. export-led sectors). If not effectively addressed through domestic labour market policies, adjustment costs persist and fall disproportionately on certain worker categories. Prolonged adjustment phases entail higher costs, reducing the overall welfare gains from trade.

Adjustment costs are likely to be particularly acute in developing countries, where labour markets are underdeveloped, predominantly informal, and lacking effective social safety nets. Empirical evidence suggests that several developing economies that liberalized trade in the 1980s and 1990s endured adjustment costs and increased informal employment in regions exposed to higher tariff cuts (e.g. China, Brazil, India). Due to insufficient job opportunities, trade-displaced workers often settled for low-paying informal jobs, which acted as an employment buffer.

The informal nature of labour markets significantly constrains policy responses. It is practically unfeasible to implement OECD-style unemployment insurance programmes, as such schemes depend on formal employment relationships that cover only a small fraction of the workforce. Likewise, job security protections do not extend to informal workers. Low skill levels, compounded by ineffective training programmes, further impede workers' ability to transition into new employment opportunities.

The limited institutional and policy capacities in developing economies to manage trade-induced adjustment challenges carry significant implications for all partners engaged in North-South trading relations. For the Global South, greater trade openness and deeper integration into global value chains are essential for economic growth. Yet the very inability to address distributional consequences limits policy space, making it difficult to embrace liberalization and fuelling protectionist demands from domestic interest groups. This, in turn, makes trade liberalization politically costly: slowing implementation, encouraging carve-outs, or leading to protectionist reversals.

For the Global North, the pursuit of market access remains a key driver of growth. However, the tangible benefits of liberalization, in the form of expanded market access and stable tariffs, depend on how effectively their trading partners in the South manage structural labour adjustments. Weak adjustment capacity in the South makes trade negotiations less stable, as liberalization can trigger backlash after agreements are signed or negotiated.

While the conventional understanding has been that distributional consequences linked to trade liberalization are best addressed by governments domestically, labour adjustment challenges create opportunities for synergy between North and South. Empirical evidence suggests a positive correlation between trade openness and government spending on social safety nets. This creates a window for Global North countries to rethink traditional aid mechanisms by helping Global South partners build effective domestic capacities to address structural labour adjustment. By helping developing countries overcome capacity constraints and pursue further liberalization, the Global North gains greater market access, thereby rationalizing their transactional approach to new aid mechanisms built on the logic of returns on investment.

Various aid instruments already exist—multilateral and bilateral—to help developing countries benefit from trade liberalization (e.g. the WTO's Trade Facilitation Agreement, the EU's Economic Partnership Agreement). The assistance is broad in scope, covering trade-related infrastructure, regulatory frameworks, export support, and labour standards, among other areas. Despite these options, expenditure on trade-related labour adjustment remains largely ignored. Notably, the Aid for Trade initiative recognizes trade-related labour adjustment as a priority area, at least in principle. In practice, however, disbursements on this account have remained negligible. For instance, EU aid for trade spending towards trade-related adjustment during 2011–2020 constituted less than 0.1% of its total spending.

This blind spot in adjustment-related aid may be addressed by legally tying adjustment assistance to trade agreements or other bilateral arrangements. An early example can be found in NAFTA, where adjustment assistance was linked to the agreement through domestic implementing legislation (Title V, NAFTA Implementation Act), aimed at mitigating the impact on trade-displaced US workers. This arrangement was, however, meant to address domestic challenges and did not apply to a trading partner. In a more recent instance, the US unilaterally allocated funds via legislation tied specifically to the United States-Mexico-Canada Agreement (USMCA) (Title IX, USMCA Implementation Act) to enhance labour standards in a trading partner country, i.e. Mexico. However, unilateral arrangements of this nature often carry conditionalities that may be perceived negatively by the weaker trading partner.

More recently, in the trade agreement between the European Free Trade Association (EFTA) states and India (implemented in 2025), the EFTA countries, in return for market access in India, agreed to inter alia facilitate the generation of one million jobs in India within fifteen years (art. 7.1) and committed to facilitating continued skill development, vocational education, and training (art. 7.3). To add teeth to the commitments, if the EFTA countries fail to fulfil their obligations after 15 years, India can retaliate by rebalancing concessions (art. 7.8), adding a certain element of legal enforceability. Similar provisions have been incorporated in the subsequent India-New Zealand trade agreement (Chapter 9).

The quid pro quo nature of the legal arrangements described above confers distinct advantages over previous arrangements. First, it does not require developed economies to bear additional funding costs, as existing bilateral and multilateral channels can be leveraged. For instance, bilateral disbursements under aid for trade, which already incorporate an adjustment assistance component, could be legally linked to trade agreements. Similarly, the EU's SOCIEUX+ programme, designed to expand access to better employment opportunities and inclusive social protection in developing countries, could be tied to trade deals to provide sector-specific adjustment support in exchange for market access or tariff commitments. Since these aid mechanisms do not impose new financial burdens on donor countries, any proposal to link them with trade agreements is unlikely to face significant domestic resistance on political economy grounds.

Second, the above legal arrangement opens further avenues for beneficial cooperation. For example, to identify specific sectors and potential losers of trade requiring targeted adjustment assistance in return for market access, Global North countries can support their trading partners in conducting ex ante impact assessments during the negotiation phase (e.g. EU-Vietnam FTA). Third, by legally embedding adjustment assistance within trade agreements, they are likely to be subjected to the same timelines and implementation requirements as trade liberalization commitments. This would ensure that governments remain perpetually accountable to the concerns of potential losers of trade, even after a trade agreement is implemented.

Beyond the legal framework outlined above, trading partners can explore complementary legal arrangements that yield mutual benefits and help fill gaps in adjustment-related assistance. Employment creation forms an important part of the adjustment process to support trade-displaced workers' transition to new jobs. Global North countries, challenged by skill shortages due to demographic factors, can negotiate bilateral arrangements to create new job opportunities or extend training and job assistance services to workers from developing economies facing capacity constraints and employment-related challenges in specific sectors.

The India-Taiwan Memorandum of Understanding (MoU) serves as a useful illustration: Taiwan, an ageing society facing worker shortages, fills labour gaps in construction, manufacturing, and agriculture with workers from India, a younger, labour-surplus economy facing its own employment pressures. Similarly, Germany addresses its shortage of skilled workers by offering vocational training, job search assistance, and placement services to attract foreign workers from developing countries.

Such bilateral arrangements, if incorporated into trade agreements, could be made legally enforceable through, for example, quantifiable commitments, including targets for job creation, employment categories, and duration of obligations, as observed in the EFTA-India agreement. However, it is suggested that developed countries should secure domestic political consensus on allowing foreign workers en masse before entering into such legal arrangements, to pre-empt any potential backlash at a later stage.

Existing tariff uncertainties, the increasing adoption of artificial intelligence in supply chains, climate change risks, and other factors are likely to amplify labour market disruptions in the near future. Yet the above examples also point to a mutually beneficial opportunity: the Global North can leverage aid as a strategic investment to further its own interests, all while channelling support through existing mechanisms to the South, thereby helping them to navigate disruptions and strengthen the capacities they need to grow. The legal arrangements discussed here illustrate the considerable scope that exists for mutually beneficial North-South cooperation. Policymakers should therefore continue to explore innovative avenues for collaboration, rather than adopting an inward-looking approach to development assistance.

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Rohan Choudhary is a PHD Researcher in International Law at the Geneva Graduate Institute.

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