Trump wants a sovereign wealth fund, but America doesn’t need one
President Trump has made no secret of his admiration of the vast riches of Gulf states and their sovereign wealth funds. His executive order to establish an American equivalent is rooted in the belief that these countries hold a competitive advantage over the U.S. because of their vast pools of state-directed capital.
As the U.S. government acquires stakes in companies with critical national security roles — Intel for chips, MP Materials for minerals — it appears that the U.S. is either adopting the state capitalism (socialism) of China or is in the incipient stages of forming a sovereign wealth fund via asset acquisition.
The truth is, an American sovereign wealth fund would be a mistake for the U.S. and would fail to address actual problems in the economy. The world’s largest and most successful sovereign wealth funds are decades-old, seeded by the sale of state-controlled assets or the possession of a large bounty of natural resources.
Let’s take two contrasting examples: Singapore and Norway.
Singapore has two major funds, GIC and Temsasek. GIC invests the country’s foreign reserves. Temasek was funded by selling stakes in inherited state-owned assets, and it has since managed to sell and trade its way to a sizeable endowment.
Norway used its vast oil wealth to start its fund. It was seeking to avoid what economists call “the Dutch problem” — when a surge in natural resource exports causes a nation’s currency to appreciate so much that traditional manufacturing and agricultural exports become uncompetitive. Guyana’s decision to set up a sovereign wealth fund is rooted in a similar calculus.
Additionally, drip-feeding revenue from oil sources prevents dislocation by flooding excess capital into one’s economy. The Norwegian fund now has nearly $2 trillion in assets and can fund state spending on public services or national security measures.
Gulf Cooperation Council countries such as Saudi Arabia, the United Arab Emirates and Qatar used the same playbook; they have vast oil and gas reserves owned and operated by state companies but limited economies. Importantly, they are net-surplus nations, whereas the U.S. is a debtor nation. Put differently, the Gulf States aren’t wealthy because they have sovereign wealth funds — they have sovereign wealth funds because they are wealthy beyond what their domestic economies can absorb. The U.S. has no such capacity problem.
What does the U.S. have that could provide comparable seed funding for a sovereign wealth funds? It boasts vast assets, but unless the administration plans a Louisiana Selloff of sorts, most of America’s natural resource assets are in private hands — as they should be in a capitalist society.
Selling stakes in companies such as US Steel and Intel or borrowing against assets are not sustainable ways to start a sovereign wealth fund. An IPO of Fannie and Freddie could raise the funds, but at the cost of long-term damage to the mortgage market. It would be impractical to start a sovereign wealth fund outside of congressional appropriations and politically unpalatable to start a fund with congressional funding, which prompts the question: Does the U.S. need a sovereign wealth fund?
The Trump administration, along with many backers outside the executive branch, seem to think a sovereign wealth fund would help finance the reindustrialization of America. The government has policy tools at its disposal to finance the revitalization of shipbuilding, to develop new mines for critical minerals, and support chip manufacturing. A former Biden administration official has argued that a sovereign wealth fund could facilitate American re-industrialization by providing financing for equipment purchases for manufacturers.
But an American sovereign wealth fund would be a poor solution to what is fundamentally a political rather than an economic problem. The power of the purse rests with Congress, but recently it has neglected much of its constitutional duty, deferring to the executive and turning the budget and appropriations process into an annual fistfight.
An infrastructure fund would allow for long-term investments in critical infrastructure such as transmission lines, 5G and 6G towers, port infrastructure, roads and high-speed rail. That money should be appropriated by Congress and administered by the relevant agencies, not some new entity acting as a government-sponsored private equity fund.
Of course, America’s struggles with building new infrastructure are not financial anyway — they are regulatory. America has the deepest capital markets in the world; the failure to build durable next-generation infrastructure isn’t due to a lack of funds — it’s because of red tape.
Trump’s desire to start a sovereign wealth fund might be a cause or a symptom of his recent buying spree in American companies. Either way, it is the wrong way to fund America’s reindustrialization. The U.S. the world’s leading private sector; lawmakers should focus on creating incentives for private actors to invest in those critical sectors. Ultimately, that is the responsibility of Congress, not the president.
Julian Graham is director of Trade and International Affairs at Signal Group.