In the midst of shutting down USAID, making a deal to send American prisoners to El Salvador, and outlining a controversial proposal to redevelop Gaza, U.S. President Donald Trump made another announcement this week that is less controversial but still presents its own challenges.
In an executive order signed on Monday, Trump laid out a plan to create a sovereign wealth fund for the United States that will “promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally.” He directed the commerce and treasury secretaries to come up with a plan for such a fund within 90 days, with Treasury Secretary Scott Bessent subsequently telling reporters that the fund will be up and running within the next 12 months.
In the midst of shutting down USAID, making a deal to send American prisoners to El Salvador, and outlining a controversial proposal to redevelop Gaza, U.S. President Donald Trump made another announcement this week that is less controversial but still presents its own challenges.
In an executive order signed on Monday, Trump laid out a plan to create a sovereign wealth fund for the United States that will “promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally.” He directed the commerce and treasury secretaries to come up with a plan for such a fund within 90 days, with Treasury Secretary Scott Bessent subsequently telling reporters that the fund will be up and running within the next 12 months.
Sovereign wealth funds are state-run investment vehicles used by several countries around the world to maximize returns on government revenue. The funds can invest in stocks, bonds, and other financial assets both domestically and overseas, as well as more tangible assets such as real estate, commodities, or companies. The world’s top five sovereign wealth funds—led by Norway’s government pension fund—each have over $1 trillion in assets. The sixth and perhaps most well-known is Saudi Arabia’s Public Investment Fund (PIF), whose $925 billion has been used for investments in Uber, electric vehicle company Lucid Motors, Indian conglomerate Reliance, and Japanese tech investment firm SoftBank. Trump specifically called out the PIF during Monday’s announcement, describing it as “on the large side, but eventually we’ll catch it.”
The roadmap to achieving that goal remains unclear, however. Most of the world’s largest sovereign wealth funds belong to countries that either possess excess oil revenues (as in the case of Norway, Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates) or foreign exchange reserves (as in the case of China and Singapore).
The biggest challenge for Trump is that the United States has neither (its oil revenues, while sizable, are dwarfed by the trillions of dollars it spends every year). Governments typically populate their sovereign wealth funds with budget surpluses, which Washington hasn’t had since 2001.
“It is not very clear how they are going to finance this,” said Adnan Mazarei, a nonresident senior fellow at the Peterson Institute for International Economics and former International Monetary Fund (IMF) official who researches sovereign wealth funds. Mazarei says the United States has three broad options to procure the funds: take on more debt by borrowing from the market, sell U.S. government assets, or raise money through taxes and tariffs. Trump has dropped some hints on his preferences, saying on the campaign trail that it would come from “tariffs and other intelligent things.” A fact sheet accompanying Monday’s executive order also pointed to the $5.7 trillion in assets that the U.S. government currently holds.
Leveraging those assets to finance the fund “is going to be a long process—it has to be made very clear why one particular asset is being sold to purchase another one,” Mazarei said. “My sense is that first and foremost this may have to rely on tax revenues, but given that the U.S. government is running a significant budget deficit, this would not be very prudent,” he added, because it could produce knock-on effects on one of Trump’s biggest economic priorities. “It will raise [the] borrowing needs of the government [and] interest rates, especially against the background of pressure on interest rates if the U.S. decides to go ahead and impose more tariffs on other countries.”
The idea of a sovereign wealth fund isn’t new to the United States. While such a fund at the national level hasn’t yet materialized, at least 23 U.S. state governments have their own funds controlling a total of $332 billion in assets, according to the White House—including Alaska, Texas, and New Mexico. The idea of a national-level fund was also reportedly discussed by senior officials in the Biden administration last year.
“The Biden administration was definitely looking at a strategic investment fund that would be heavily focused on strategic sectors” such as critical minerals and defense technology, said Peter Harrell, who served as the White House’s senior director for international economics for nearly two years during the Biden administration. (Harrell stressed that he was not directly involved in discussions about the sovereign wealth fund.)
Harrell, currently a nonresident fellow at the Carnegie Endowment for International Peace, said there are several reasons for a sovereign wealth fund to be attractive to Washington. Much of U.S. government investment comes from appropriating funds tied to specific sectors such as defense or energy, or—as in the case of the Biden administration’s landmark CHIPS and Science Act for semiconductors—in the form of subsidies to the private sector.
“One argument in favor of sovereign wealth funds is to give [governments] more flexibility in the full range of strategic sectors that lets you do a broader suite of investment,” Harrell said. “The other is that maybe the government, instead of handing out money as grants and loans to private enterprises that get all the upside, should come in as co-investors so the government gets some of the upside.”
It is not immediately clear what the priorities of the Trump administration’s proposed sovereign wealth fund would be. The biggest headline-making hint came in an offhand remark by Trump when he signed it, speculating that it could be used to solve another big policy conundrum. “We’re going to be doing something, perhaps, with TikTok,” he said in the Oval Office, referring to the social media app owned by the Chinese company ByteDance that his administration is trying to find an American buyer for due to national security concerns. While U.S. government ownership of TikTok would raise several questions over freedom of speech and content moderation, Harrell said it could serve as an important bellwether for the goals of the sovereign wealth fund.
“It’s sort of easy to joke about it, but it’s a serious question,” he said. “I am yet to hear somebody argue that social media is a strategic industry from a national interest perspective. If the first thing this sovereign wealth fund buys is TikTok, that would actually suggest that … this is a vehicle for political goals and a vehicle for return maximization.”
That points to two other big questions about the fund: Who will run it and how will it be governed? The most prominent framework for sovereign wealth funds around the world is known as the Santiago Principles, a set of 24 voluntary best practices put forward by the IMF and a group of sovereign wealth funds in 2008. Those principles, ratified by more than two dozen funds around the world, include a sound legal framework, independent oversight, public accountability, and fiscal stability.
Mazarei, who was closely involved in drafting the Santiago Principles during his time at the IMF, expressed concern that a lack of transparency could lead any U.S. sovereign wealth fund down a slippery slope. “Essentially, this is going to have an element of at best de-risking and at worst picking winners,” he said. “There is a possibility that it’s misused by elements with access within the U.S. government to decide to invest U.S. assets in ways that may not be commercially or strategically prudent, but simply for them to make good money.”
Harrell also outlined several legal questions the fund would have to grapple with. “Is there a legal authority to do this or do they have to go to Congress to get new things stood up?” Harrell said. “Trump has talked about using tariff revenue to fund this thing, you have to get Congress on board to do that. Who is actually going to run this thing? Is Elon going to run it?” he added, referring to Trump ally and billionaire Elon Musk, who has been tasked with slashing government spending under the newly formed (and somewhat unofficial) Department of Government Efficiency.
Finally, Trump’s stated objective of funding the new initiative with tariff revenues could complicate any potential future investment efforts. “If at some point this sovereign wealth fund does undertake investments in other countries [where] the U.S. has antagonistic commercial or other relations, other countries would be very careful about receiving U.S. investment,” Mazarei said. “They may put restrictions on U.S. investment.”
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