Donald Trump Approves Sovereign Wealth Fund, Suggests It Could Aid TikTok US Deal

U.S. President Donald Trump has signed an executive order directing the creation of a sovereign wealth fund within the next year. He stated that the fund could potentially be used to acquire the short-video app TikTok. This move aligns the U.S. with several other nations, particularly in the Middle East and Asia, that have established similar funds to manage direct investments using government resources.

Details of the Executive Order

The text of the executive order is minimal, only instructing the Treasury and Commerce Departments to draft a comprehensive plan within 90 days. This plan must include recommendations on key aspects such as funding sources, investment approaches, structural design, and governance models. Unlike many sovereign wealth funds, which rely on budget surpluses, the U.S. operates under a deficit, making this initiative unique and challenging.

Challenges and Congressional Approval

Given the nation’s deficit, creating such a fund would likely require congressional approval. Trump, however, remains optimistic about generating substantial wealth through this initiative. “We’re going to create a lot of wealth for the fund,” he told reporters. He previously proposed a similar government investment vehicle during his presidential campaign, envisioning it as a means to finance national projects like infrastructure development, manufacturing, and medical research.

Funding Strategies for the Sovereign Wealth Fund

The administration has not clarified how the fund will be financed. However, Trump has suggested that potential sources could include tariffs and other revenue-generating strategies. Treasury Secretary Scott Bessent confirmed that the fund is expected to be operational within 12 months. He stated, “We’re going to monetize the asset side of the U.S. balance sheet for the American people.” The approach may involve leveraging liquid assets and previously untapped resources within the country.

Potential Role of the U.S. International Development Finance Corporation

One possible strategy under consideration is restructuring the U.S. International Development Finance Corporation (DFC) to function similarly to a sovereign wealth fund. Bloomberg News recently reported that the Trump administration had explored this possibility. The DFC currently collaborates with private sector entities to finance projects in developing nations, and repurposing it for domestic investments could be a viable approach.

Leadership and Political Implications

Trump recently nominated Benjamin Black, a managing partner at investment firm Fortinbras Enterprises, to lead the DFC. Black is the son of Leon Black, co-founder of asset management giant Apollo Global Management. Interestingly, reports suggest that the Biden administration had also been considering the idea of a sovereign wealth fund before Trump’s election in November.

Congressional Hurdles and Expert Opinions

Experts indicate that establishing and funding such a fund would likely require congressional approval. Clemence Landers, a former Treasury official and current analyst at the Center for Global Development, emphasized that executive orders alone cannot create or finance such institutions. “You can’t establish an institution by executive order, and you certainly can’t fund one that way,” she explained.

Market Reactions and Economic Concerns

The announcement has sparked mixed reactions among investors. Colin Graham, head of multi-asset strategies at Robeco in London, expressed skepticism, stating, “Creating a sovereign wealth fund assumes a country has surplus savings to invest, which the U.S. currently lacks. The economic principles don’t quite align.”

Comparisons with Global Sovereign Wealth Funds

According to the International Forum of Sovereign Wealth Funds, over 90 such funds exist globally, managing assets worth over $8 trillion. Several U.S. states, including Alaska, Texas, and New Mexico, have their own wealth funds, primarily financed by revenues from natural resources like oil and land. These state-level funds support various initiatives, including education and tax relief.

Potential Involvement in TikTok’s Sale

In a surprising development, Trump hinted that the newly proposed fund might be used to purchase TikTok. The app’s future remains uncertain, as a law requiring its Chinese parent company, ByteDance, to either sell the U.S. operations or face a ban took effect on January 19. Upon taking office on January 20, Trump signed an executive order delaying the law’s enforcement by 75 days.

Uncertain Future for TikTok

Trump revealed that discussions regarding TikTok’s sale are ongoing, with multiple parties expressing interest. He stated that a final decision regarding the app’s future could be made by February. The social media platform boasts approximately 170 million users in the U.S. “We might do something with TikTok, or we might not,” Trump commented. “If the right deal comes through, we’ll consider it. Otherwise, we won’t… maybe we’ll place it in the sovereign wealth fund.”

Conclusion: Future Implications

The establishment of a U.S. sovereign wealth fund represents a significant economic shift, with potential implications for government investment strategies and national financial management. However, its feasibility remains uncertain, given the country’s budgetary constraints and the requirement for congressional approval. The potential link to TikTok’s acquisition adds another layer of complexity to this initiative, making it a topic to watch in the coming months.