On Monday, President Donald Trump signed an executive order directing the US Treasury and Commerce departments to establish a sovereign wealth fund.
Why It Matters
Trump suggested that the fund could be used to buy TikTok, a popular social media app that was briefly taken offline on January 19 before a law was passed requiring its parent company, Bytedance, to divest from it or face a ban.
Critics argued that banning the app would disrupt the creator economy and disproportionately affect small businesses that have benefited financially from the platform. Proponents of the ban raised national security concerns. The fund could offer an alternative to keeping the app operational while addressing these concerns.
What Is A Sovereign Wealth Fund?
A sovereign wealth fund (SWF) is a state-owned investment fund that holds assets like stocks, bonds, real estate, and other financial instruments.
Governments typically establish these funds to achieve specific economic goals, and they are frequently funded through budgetary surpluses, foreign currency operations, proceeds from privatizations, governmental transfer payments, and revenue from resource exports.
Key characteristics and purposes of sovereign wealth funds:
- Stabilization Fund: To insulate the national budget and economy from commodity price swings or economic shocks.
- Savings Fund: To build wealth over the long term, particularly for future generations.
- Pension Reserve Fund: To cover future pension liabilities and ensure long-term fiscal health.
- Development Fund: To fund social and economic development projects like infrastructure or education.
- Strategic Investment Fund: To influence or acquire strategic assets that can benefit national interests.
Examples of well-known sovereign wealth funds include Norway’s Government Pension Fund Global, the Abu Dhabi Investment Authority, and China’s China Investment Corporation.
What to Know
Trump mentioned using the fund for TikTok while signing the order in the Oval Office on Monday.
After taking office on January 20, he issued an executive order delaying the law’s enforcement by 75 days. He stated that he was in talks with multiple parties about purchasing TikTok and planned to make a decision on the app’s future in February.
During his campaign, Trump hinted at the creation of the fund, which could be used to fund projects such as highways, airports, and medical research, according to The New York Times. He also mentioned that a fund could generate profits to help reduce the national debt.
The idea has some bipartisan support—President Joe Biden has also considered creating a sovereign wealth fund, and Representative Morgan McGarvey, a Kentucky Democrat, introduced a bill last year to establish a federal commission to investigate whether the United States should create one.
“This could be a tool to help us pay for universal child care, an expanded Child Tax Credit, and a slew of other policies that benefit ordinary Americans and invest in our future. “I’m excited to see what the experts think,” McGarvey said in a statement in September 2024.
What People Are Saying
President Donald Trump, while signing the order:Â “Other countries have sovereign wealth funds, and they’re much smaller countries and they’re not the United States. We have tremendous potential in this country. That’s what’s happened just in a short period of time. As an example, TikTok. 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.”
Douglas Holtz-Eakin, president of American Action Forum, in a September blog post:Â “How would we acquire one such magical sovereign wealth fund? The only way would be to levy taxes, not spend the money, and build the fund. I don’t know if anyone has noticed, but the federal government does levy taxes, but not as much as it does spend money, and has only accumulated debt in the process.”
What Happens Next
The fund’s announcement comes just hours before President Trump’s tariffs are set to take effect. Tariffs against Canada and China will go into effect on Tuesday, while President Trump announced on Monday that tariffs on Mexican goods would be delayed by a month.