President Donald Trump signed an executive order on Feb. 3 establishing a government-run sovereign wealth fund (SWF) within the next 12 months. Following in the footsteps of other countries in Asia and the Middle East, the latest executive action will serve as an economic development instrument, deploying taxpayer resources directly into investments. Economists and personal finance experts are already crying foul over the idea of an indebted nation using taxes to invest in, let’s say, TikTok. Is it a sound fiscal strategy?
Sovereign Wealth Fund – What Happened
While the executive order was short on details, it directed the Commerce and Treasury departments to present blueprints to craft a fund within 90 days. These efforts will include proposals for "funding mechanisms, investment strategies, fund structure, and a governance model." He told reporters the United States would produce lots of wealth, adding that "it's about time that this country had a sovereign wealth fund."
On the campaign trail, the president had alluded to the idea of a government investment vehicle that would help fund "great national endeavors," particularly infrastructure projects. Treasury Secretary Scott Bessent also explained to reporters that the federal government would begin monetizing the asset column of the US balance sheet. "There'll be a combination of liquid assets, assets that we have in this country as we work to bring them out for the American people," he said.
The first target for investment? Trump signaled to reporters that TikTok, a video-sharing platform, could be the first focus. "We’re going to be doing something, perhaps, with TikTok, and perhaps not; if we make the right deal, we’ll do it, otherwise we won’t, but I have the right to do that,” he told the press in another Oval Office powwow.
Trump is not the first US politician to propose the idea. Last year, Rep. Morgan McGarvey (D-KY) filed legislation to pursue the creation of a sovereign wealth fund, saying that it is a concept not only for the 21st century "but plans for the 22nd century." Former administration officials, including National Security Advisor Jake Sullivan, were reportedly brainstorming ideas for the fund.
Additionally, the government already invests overseas through the US International Development Finance Corp. (DFC), a seven-year-old independent agency that supports development projects in targeted countries while earning money. The group also offers different financing arrangements, such as insurance and loans. Media reports indicated that billionaire Elon Musk desired to transition the DFC into an SWF.
The United States would join the nearly 100 countries worldwide with sovereign wealth funds, most notably China, Norway, Saudi Arabia, Singapore, and the United Arab Emirates. Capital to initiate these investments emanates typically from budget surpluses, vast foreign exchange reserves, or revenues from natural resources. Like the United States, these endeavors are employed to fund and support public programs and infrastructure projects or stabilize economies.
Where’s the Cash?
The view from above illustrates red ink traversing through Pennsylvania, Constitution, Independence, and Massachusetts avenues in the nation’s capital. So, how could Uncle Sam conceive of acquiring a stake in the video-sharing juggernaut?
A US SWF could be a viable alternative to manage ballooning budget deficits and growing national debt. Under the previous administration, the Treasury issued trillions of short-term debt to generate cash for Uncle Sam. This has created a situation whereby the United States has flooded capital markets with too many bonds, crowding out private investment and muting domestic demand.
At the same time, this raises the question: Should a country facing a $36 trillion national debt, annual $2 trillion deficits, and $200 trillion in unfunded obligations consider investing? Financial experts advise deeply indebted households against opening a Robinhood account and allocating their finite resources to Nvidia or Tesla stock. Instead, they say individuals must first pay off their unhealthy debts, especially high-interest loans.
Ultimately, the primary hurdle to overcome is the cash necessary to fund a government investment vehicle. The initial seed money, Trump suggested, could come from tariff revenues. According to the latest Monthly Treasury Statement, the United States generated $7 billion in customs duties in December. With the White House going scorched earth on tariffs, these revenues should exponentially increase in the coming year.
Indeed, there is no fixed minimum investment total to launch an SWF, but to put the strategy into context, Norway's and Saudi Arabia's SWFs are worth $2.1 trillion and $930 billion, respectively.
Experts at the Center for Global Development, a non-profit think tank concentrating on international development, are skeptical that the United States possesses the necessary firepower to jump-start an SWF. In January, the group concluded that federal revenue streams are too small to capitalize on the fund. "Given the United States’ track record, a proposal that relies on hypothetical future budget surpluses is unrealistic," the report concluded.
Bipartisan Consensus
For now, one side of the aisle is throwing a tantrum in front of the Treasury Department because the Musk-led Department of Government Efficiency (DOGE) is auditing the federal payments system. Therefore, these lawmakers will unlikely present a modicum of support for anything the administration proposes right now. However, there has been a bipartisan consensus in the political atmosphere on launching a state-run investment fund, and this idea could leave taxpayers nervous. As the legendary economist Thomas Sowell wrote, "As a rule of thumb. Congressional legislation that is bipartisan is usually twice as bad as legislation that is partisan."
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