Signaling a historic reversal in its approach to economic policy, the United States government last week unveiled plans for a new sovereign wealth fund. This drive was launched by President Trump himself in early February. This fund is intended to be a financial backstop to a wide range of transactions that could follow, such as the acquisition of TikTok. The establishment of this fund is an important indicator of a new, overall strategy to enhance domestic production while minimizing reliance on foreign adversaries.
Valued at $8.9 billion, the sovereign wealth fund will target federal grant funding, starting with the CHIPS Act infrastructure investments. This act tangibly encourages semiconductor production in the U.S. This is the mechanism usually employed by smaller, resource-rich nations. It will enhance the federal government’s ability to catalyze smart, strategic investments across essential sectors.
The federal government has repeatedly invested in corporations through bailouts during difficult economic periods. In practice, for instance, it has taken stakes in Fannie Mae and Freddie Mac following the financial crisis. It is unusual for the federal government to take large equity positions in private companies. This approach is in line with a growing movement seen across the world. China single-handedly created the sovereign wealth fund. Many countries in the Middle East are similarly grappling with megafunds as well. Norway remains an unusual case globally with its sovereign wealth fund, which has $1.8 trillion in assets.
Kevin Hassett, the director of the National Economic Council, discussed the motivations behind the sovereign wealth fund during an interview on CNBC’s “Squawk Box.” He emphasized the uniqueness of the current situation, attributing it to “the massive amount of chips act spending that was coming in.”
Hassett made it clear that government does not want to cherry pick winners and losers among companies.
“We’re absolutely not in the business of picking winners and losers.” – Kevin Hassett
The creation of this sovereign wealth fund has been a central tenet of our bold overall plan. We’re doing this in parallel with tariffs on companies that make the financial incentive to move their production facilities to countries like China. Fortunately, the U.S. government is doing everything it can to encourage domestic manufacturing. Through these efforts, it is prioritizing innovation in strategic industries to increase economic resilience and strengthen global competitiveness.
Our partners at the Sovereign Wealth Fund Institute offer a wealth of knowledge about sovereign wealth funds around the world, demonstrating their growing importance in global finance. The U.S. intention to create such a fund signifies a notable shift in policy, aiming to secure national interests while navigating complex international economic landscapes.