What Is A Sovereign Wealth Fund? Trump Proposes Idea In Economics Speech
Topline
Former President Donald Trump proposed the creation of a sovereign wealth fund for the U.S. on Thursday, suggesting the government-owned investment fund used by countries such as Norway, China and South Korea would be created and partially funded by tariffs if he wins the presidential election.
Republican presidential nominee, former U.S. President Donald Trump addresses the Economic Club of … [+]
Key Facts
Trump made the proposal during a speech at The Economic Club of New York, questioning why the U.S. does not have a sovereign wealth fund and saying his administration would make the country’s own fund “to invest in great national endeavors for the benefit of all of the American people.”
Trump said “tremendous amounts of money” generated from tariffs “and other intelligent things” would be used to supply the investment fund.
Sovereign wealth funds are state-owned investment funds that, like traditional investment funds, can invest in stocks, real estate, bonds, hedge funds and more, building up a pool of money that can be used to insulate the government and its people from economic stressors.
Money within the funds can be sourced from a country’s budget surplus, which can come from things such as trade surpluses, government-owned natural resource revenues, foreign currency operations and government transfer payments, according to the Corporate Finance Institute.
However, the U.S. has largely operated at a federal deficit and not had a budget surplus since 2001, according to the U.S. Treasury, when it had a surplus of $128 billion.
The U.S. has traditionally not needed a sovereign wealth fund, as the Federal Reserve and U.S. Treasury are capable of managing similar long-term investments taken on by wealth funds, according to FCLTGlobal CEO Sarah Keohane Williamson, with the two government bodies actively supervising economic stability, foreign reserves and government financing.
The U.S. is familiar with sovereign wealth funds at the state level, with states such as Texas, New Mexico and Alaska owning multibillion-dollar funds centered around real estate, education and oil drilling.
Get Forbes Breaking News Text Alerts: We’re launching text message alerts so you’ll always know the biggest stories shaping the day’s headlines. Text “Alerts” to (201) 335-0739 or sign up here.
Surprising Fact
Aides to President Joe Biden have been working on a proposal for a sovereign wealth fund, according to Bloomberg, citing an unnamed source with knowledge of the situation. The fund would reportedly enable federal investments in technology, energy and big supply chain players. Details of the fund’s format and inner workings are unclear, though aides have been working for months on the proposal, Bloomberg reported.
Tangent
Saudi Arabia’s sovereign wealth fund, known as the Public Investment Fund, has reportedly invested more than $2 billion into LIV Golf—a competitor to America’s PGA Tour that managed to court several PGA golfers including Brooks Koepka and Bryson DeChambeau. The fund has $925 billion in assets. LIV held an event at Trump National Golf Club Bedminster in 2022.
Contra
Trump’s proposal to supply a sovereign wealth fund with tariff-generated money may prove difficult. A large majority of the former president’s tariffs collected during his first administration went to farmers who took big losses from China’s retaliatory tariffs—92% to be exact—according to the Council on Foreign Relations, which noted Trump pledged to continue providing farmers with payments until the trade war ended. If Trump is elected to a second term and sticks to his pledge, his tariffs may not be as viable a revenue generator for the wealth fund as he claims. Tariff revenue has also become increasingly less relevant to government revenue, according to the White House, accounting for just 2% of the $4.4 trillion in federal tax revenue last year while individual and non-wage income tax made up more than three-quarters of federal tax revenue.
News Peg
Hedge fund billionaire John Paulson, who Forbes estimates has a $3.8 billion net worth, told Bloomberg after Trump’s speech the U.S. should create a stronger sovereign wealth fund than Norway’s, which is the top fund in the world with $1.7 trillion in assets. Paulson said Trump could compensate for shortcomings in the U.S. budget through tariffs and reducing excessive spending, Bloomberg reported.
Key Background
Trump in his 2024 campaign has pledged his support for cutting corporate tax rates from 21% to 15%, proposing no income taxes on Social Security, eliminating taxes on tips and floating a potential 10% tariff on most imports and a 60% or more tariff on Chinese goods, according to The New York Times, which added the former president’s tariff policy while in office ended up reducing imports and boosting production in some industries such as steel and semiconductors. Economists have warned overreliance on tariffs could spell trouble for consumers. Trump’s tariffs in 2018 and 2019 generated nearly $80 billion worth of new taxes on Americans, according to the Tax Foundation, with U.S. households experiencing an average annual tax increase of $625 alongside “lower incomes, and loss in consumer choice.”
Further Reading
The UK Has A New Sovereign Wealth Fund – Why Doesn’t The U.S.? (Forbes)
How The Economy Really Fared Under Biden And Trump–From Jobs To Inflation (Forbes)
link
