The federal government is going into business after President Donald Trump signed an executive order last week establishing a sovereign wealth fund to, as he stated, "promote the long-term financial health and international leadership" of the U.S. Such funds are usually associated with "great wealth," especially in oil-rich countries like Norway and Saudi Arabia and are generally used by those countries to invest in projects of "strategic interest." The new U.S. fund is either a "feasible idea to invest strategically," said Tuft University's Patrick J. Schena at The Conversation, or a "giant opportunity for waste."
How do sovereign wealth funds work? A sovereign wealth fund is a "state-owned investment fund that manages a country's financial assets," said Kiplinger (a sister site of The Week). Countries can take "surplus revenues" from exports, taxes or other sources and invest them, either to "achieve long-term economic stability" or (more controversially) "finance political or diplomatic priorities" that can work as a form of soft global power.
The funds can buy "just about anything." For example, China uses one sovereign fund to finance power and transportation projects in Africa. Trump has suggested using the fund to buy TikTok, said CNN.
How would the US fund be financed? America isn't exactly running budget surpluses these days. Indeed, "it's unclear" how the U.S. might come up with money for a fund, said The New York Times. Trump's team pointed to $5.7 trillion in assets held by the government — a mix of cash, defense stockpiles and other property — as a possible source, but it may be difficult to move those dollars into a fund.
What are the downsides? "Plenty" of things could go wrong, said The Wall Street Journal. An American sovereign wealth fund might divert capital from the private-sector economy and could "fund political boondoggles and mess with the business decisions of private companies."
The funds of other countries tend to "enrich a country's rulers and their friends far more than citizens." Malaysia's fund has "channeled billions of dollars" to the prime minister and his cronies. "Corruption is a constant temptation."
What next? Trump's order gave the Treasury and Commerce Departments 90 days to submit recommendations for "funding mechanisms, investment strategies, fund structure and a governance model" for the fund, said Reuters. Any plan will "likely require approval" from Congress. |