Leaders in both major political parties are interested in establishing a U.S. sovereign wealth fund, but some experts say creating such a fund will be daunting and impractical.
Several states have sovereign wealth funds — government-controlled investment funds that enable excess capital to be invested. That includes ones backed by energy and mineral resources, like the $78.6 billion Alaska Permanent Fund Corp., the largest in the U.S.
Countries with significant commodity exports like Norway, China, Saudi Arabia and Kuwait also have massive sovereign wealth funds, with trillions of dollars in assets among the group.
The U.S. does not.
But last week, former President Donald Trump called for establishing a U.S. sovereign wealth fund to pay for infrastructure projects and reduce the national debt.
Though he did not provide specifics, Trump said during a speech before the Economic Club of New York that the fund would be supported through tariffs. The Republican candidate has called for imposing a universal baseline tariff on all U.S. imports of 10% to 20% and a 60% tariff on all U.S. imports from China, according to the nonprofit Tax Foundation.
Separately, top aides to President Joe Biden are working behind the scenes to create a sovereign wealth fund that would allow the U.S. to invest in national security interests including technology, energy and critical links in the supply chain, Bloomberg reported.
Key details about the fund — like its potential structure, funding model and investment strategy — remain unclear, but aides have been circulating planning documents among White House staffers and key agencies, according to Bloomberg.
Diego López, founder and managing director of Global SWF, a consultancy and data provider focused on sovereign wealth funds and public pension funds, said the establishment of a U.S.-wide sovereign wealth fund is very unlikely.
Lopez explained that U.S. states “have significant autonomy when it comes to finances and budgets, so getting anything done at federal level is a challenge.”
Congress must approve
Regardless of which party controls the White House — Vice President Kamala Harris has not publicly endorsed creating a sovereign wealth fund — Congress would have to approve such a fund, which presents challenges.
“I would be very surprised if this was something that got through Congress,” said Adam Dixon, the Adam Smith chair in sustainable capitalism at Adam Smith’s Panmure House in Edinburgh, Scotland.
Dixon said the politics around managing and investing a federal sovereign wealth fund’s assets would prove challenging. Also, the U.S. dollar is the world’s reserve currency, and the federal government is $35 trillion in debt, Dixon noted.
“I don’t think the U.S. needs one,” he said. “I don’t think it’s appropriate necessarily for the U.S.”
Likewise, Douglas Holtz-Eakin, president of the American Action Forum policy institute, a conservative think tank, questioned the need for a fund.
“What problem would this solve? To my mind, none. There’s no merit to it regardless of who proposes it,” Holtz-Eakin told Bloomberg. “All this would do is insulate that process from political scrutiny and oversight, and that’s the last thing we need.”
Tariffs trigger stagflation
On Trump’s plan to seed the fund with tariff revenue, Daniel W. Drezner, distinguished professor of international politics at Tufts University, said it would “trigger stagflation, disrupt the U.S. alliance system and not raise the kind of money Trump suggests.”
If imposed, Trump’s tariff plan would raise $524 billion annually in taxes and shrink GDP by at least 0.8%, according to the Tax Foundation.
In the same speech before the Economic Club of New York, Trump also said the tariff revenue would offset his plan to extend Republican’s 2017 tax cuts, which expire next year, and mitigate the rising cost of child care.
Former Treasury Secretary Lawrence Summers, responding to Trump’s sovereign wealth fund proposal, said the idea is “incomplete” in a Bloomberg Television interview.
“It’s one thing if you’re Norway or the Emirates — that has this huge natural resource that’s going to run out that you’re exporting — to accumulate a big wealth fund,” Summers said. “But we’ve got a big trade deficit. We’ve got a big budget deficit.”
But billionaire hedge fund manager John Paulson endorsed the idea in a separate Bloomberg Television interview.
“It would great to see America join this party and instead of having debt, have savings,” Paulson said. “It would be, over time, larger than any of the existing funds.”
The biggest sovereign wealth fund currently is Norway’s $1.7 trillion Government Pension Fund Global.
But Lopez said there's a long way to go before even establishing a U.S. sovereign wealth fund is a reality.
“At this point,” he said, “it sounds as a marketing speech, given the ongoing presidential campaign, so we will only be able to assess real interest once the new presidency takes office.”