Sovereign Wealth Funds: A New Era for American Economic Power

Birth of the US Sovereign Wealth Fund

As we approach the United States’ 250th Semiquincentennial next year, a monumental shift in our nation’s economic strategy is underway. President Trump’s recent executive order to create a U.S. Sovereign Wealth Fund (SWF) marks a pivotal moment in American financial history[2][4]. At the Tax Project Institute, we have long discussed the potential benefits of a national investment account in the form of a SWF, recognizing its transformative potential for our economy (See our Article on Sovereign Wealth Funds here).

A Sovereign Wealth Fund is a state-owned investment fund that manages a country’s excess reserves, typically derived from natural resource revenues, trade surpluses, or other sources of national wealth. These funds are designed to invest in a diverse range of assets, both domestic and international, to generate returns and support long-term economic objectives. Much like a national investment account, it grows and compounds over time, and as it grows it becomes of source of revenue offsetting the need for things like additional taxes.

The creation of a U.S. SWF is a watershed moment that may be viewed by future generations as one of the most impactful acts in American history, comparable to the Louisiana Purchase, the Emancipation Proclamation, or the New Deal. Just like a savings and investment account, it doesn’t sound or look like much now, but in 50 or 100 years it could be game changing, and looked at in the same way as other major acts. While it won’t immediately solve our national debt issues or eliminate budget deficits, it could be the first step towards putting our country on a more substantial economic footing.

What are they for?

Sovereign Wealth Funds serve various purposes across the globe. Some of the key areas where SWFs are utilized include:

1. Economic Diversification: SWFs help countries reduce their dependence on a single sector or resource by investing in a wide range of industries and assets.
2. Intergenerational Savings: They can preserve wealth for future generations, especially in countries with finite natural resources.
3. Stabilization: SWFs can act as fiscal stabilizers during economic downturns or when commodity prices fluctuate.
4. Strategic Investments: They allow countries to invest in key industries or technologies that align with national interests.
5. Infrastructure Development: Many SWFs focus on funding critical infrastructure projects both domestically and internationally.

In short, they are investment accounts run by the country, and the hold the potential to fund significant portions of future expenses, and offset revenue short falls.

What it means for the U.S?

The U.S. SWF has the potential to become the largest in the world, given the size and strength of the American economy. As of 2025, the largest SWF is Norway’s Government Pension Fund Global, with assets under management of $1.78 trillion[6]. The U.S. fund could potentially surpass this figure, leveraging the country’s vast economic resources and global influence.

The implications of a U.S. Sovereign Wealth Fund are far-reaching:

1. Enhanced Global Economic Influence: A large U.S. SWF would significantly increase America’s economic clout on the world stage, potentially rivaling or surpassing the influence of other major SWFs from countries like China, Norway, and the UAE[6].
2. Domestic Investment: The fund could be used to finance critical infrastructure projects, support emerging industries, and drive innovation within the United States.
3. Long-term Fiscal Planning: A well-managed SWF could provide a cushion against economic downturns and help address long-term fiscal challenges.
4. Wealth Distribution: If structured appropriately, the fund could potentially provide direct benefits to American citizens, similar to Alaska’s Permanent Fund[4].
5. Strategic Acquisitions: The fund could be used to acquire stakes in strategically important companies or technologies, as hinted at by the potential involvement in TikTok[2][4].
6. Market Impact: The sheer size of a U.S. SWF could have significant effects on global financial markets, potentially influencing asset prices and investment trends

While not a panacea, a SWF offers significant Economic flexibility at scale to offset and provide services in a number of ways to minimize economic shocks, like the 2008 Great Recession or the COVID pandemic, or offset expenses on long term items like infrastructure, or potential pending large scale changes in the market, like AI offsetting white collar jobs.

Global Context

As we consider the potential of a U.S. Sovereign Wealth Fund, it’s important to look at some of the largest existing SWFs for context:

These funds have played crucial roles in their respective countries’ economic strategies, from Norway’s focus on preserving oil wealth for future generations to China’s efforts to diversify its foreign exchange reserves. Given that the US GDP is almost 13 times larger than Norway, you can see the potential size of the fund and the proceeds that it maybe able to throw off. Just doing simple math lets say the US SWF reaches $20 trillion, taking 4% annually from the fund to reinvest on Americans (offset taxes, new infrastructure, services, direct payments, etc.) could lead to $800 billion in annual offsets. Given the unending demands on government budget, this won’t solve our problems, but it can certainly help.

Summary

The creation of a U.S. Sovereign Wealth Fund represents a paradigm shift in how America approaches its economic future. As Treasury Secretary Scott Bessent explained, “It will include a mix of liquid assets and resources that we possess domestically as we aim to make them available for the American populace.”[4] This approach could unlock significant value from government assets and activities that have previously been underutilized.

However, the establishment of such a fund is not without challenges. Proper governance structures, transparency measures, and regulatory frameworks will be crucial to ensure the fund operates in the best interests of the American people. As a 2024 study by the Carnegie Endowment for International Peace warned, without appropriate safeguards, sovereign wealth funds could potentially become “vehicles for corruption, money laundering, and other illegal activities.”[4]

The development of the U.S. SWF over the next year will be a process closely watched by economists, policymakers, and global investors alike. Its potential to reshape America’s economic landscape and global financial influence cannot be overstated. As we celebrate our nation’s 250th anniversary, the creation of this fund may well be remembered as a defining moment in our economic history.

In conclusion, the establishment of a U.S. Sovereign Wealth Fund represents a bold step towards securing America’s economic future. By leveraging our nation’s vast resources and economic power, this fund has the potential to drive innovation, support critical investments, and ensure long-term fiscal stability. As we move forward, it will be essential to strike a balance between ambitious growth and responsible management, ensuring that this new economic tool truly serves the interests of all Americans for generations to come.

Citations:
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