Yesterday, Trump issued an executive order calling for a plan to establish a sovereign wealth fund for the United States. The order is sparse on details, directing the Secretary of the Treasury Scott Bessent and the Secretary of Commerce Jeremy Palter to come up with “recommendations for funding mechanisms, investment strategies, fund structure, and a governance model” within 90 days. Bessent has stated that the administration plans to have the fund up and running “within the next twelve months.” As for what the fund might be used for, the only indication from the Trump administration so far is that it may be used to purchase TikTok. While not a novel concept at the state level, a sovereign wealth fund administered by the federal government would be the first of its kind in the country’s history. Still, what is known about Trump’s proposal does not make it seem immediately actionable or worthwhile.
SWFs are typically established by resource-rich countries, reinvesting funds generated from activities like oil production as a way to counter economic volatility associated with dependence on such industries through diversification, as well as to put the excess liquidity to work instead of channeling it into immediate consumption. Essentially, all or most of the surpluses run by government activity goes into the fund, which is then reinvested in whatever manner its managers in government see fit. The largest in the world is Norway’s Government Pension Fund, a $1.7 trillion fossil-fuel-backed fund that owns nearly 1.5% of publicly traded stocks worldwide, as well as nearly a thousand properties around the world.
These funds can be used strategically to advance certain interests and policies. Norway’s GPF used its position as a Tesla stockholder to protest the $50 billion pay package for Silicon Valley financier Elon Musk. Saudi Arabia used the weight of its $930 billion Public Investment Fund to essentially take over professional golf, establishing a league that competed aggressively against America’s PGA Tour and the European tour until they both caved, eventually agreeing to combine forces with Saudi Arabia’s LIV Golf and make the PIF’s governor chairman of the new entity.
Across the country, a number of states make use of sovereign wealth funds to meet basic needs of their populations, namely education and pensions. There are 23 mostly right-leaning states that use some form of SWF, managing a combined total of $322 billion, according to the White House. Most notable of these is the Alaska Permanent Fund which, like many of its country-level counterparts, is funded by oil and gas extraction in the state. APF’s value has topped $75 billion, and the fund distributes a yearly dividend to each of its citizens, which in 2022 was $3,284.
Whether the United States is a suitable candidate for such a fund at the federal level is a source of some controversy, even though both Trump and Biden before him have toyed with the idea. States that typically make use of SWFs do not have a lot of debt, while the U.S. runs yearly deficits in the trillions of dollars. Speaking to the Washington Post, professor and macroeconomist Mark Crosby said that in light of this, the idea “doesn’t make that much sense.” Nobel prize-winning economist Joseph Stiglitz came out in favor of a national SWF for the United States during COVID, as a way to take advantage of the state’s bailouts of private industries and make them work for regular people. “As taxpayers, we bear the downside risk. If the businesses don’t pay back, we bear the losses,” he said in a 2020 interview. “If that is so, we all must also benefit from the potential upside when companies are profitable again.” This model could indeed have funded a SWF with state investments in domestic firms rather than the more typical oil or mineral wealth proceeds, resources which the federal government largely does not control. However, as is typical with American bailouts of private interests, the government did not demand a stake in the companies it saved, so Stiglitz’s idea became moot.
None of this is addressed in the White House’s current discussion around the idea. Donald Trump has proposed chipping into an SWF with proceeds from tariffs and “other intelligent things,” which is broadly panned as insufficient, and the White House fact sheet on the issue does little shed light on a solution either. Biden’s administration also did not clarify how it would fund such a proposal before he left office.
