How Feasible is the Creation of a US Sovereign Wealth Fund?
Luke Bokaba
One of the rare ideas President Donald Trump and Former President Joe Biden agree upon is the creation of a US Sovereign Wealth Fund (SWF). Texas, Alaska, New Mexico, and Wyoming do have state-level wealth funds, but the US does not have its own, national SWF. To discover how feasible this idea is, I shall provide: a history of Sovereign Funds, a comparison of the US with nations that have successfully founded such funds, and examine possible challenges the US may face.
The History of Sovereign Wealth Funds
A Sovereign Wealth Fund is a state-owned investment vehicle typically used to invest in domestic and international markets. Nations that possess the largest SWFs in the world include Norway, China, the UAE, Saudi Arabia, Kuwait, and Qatar. Kuwait (1953) was the first nation to adopt a SWF, with the intention of investing surpluses generated from oil revenues (IFSWF, 2019). Texas founded its Permanent School Fund in 1845 (Texas Permanent School Fund Corporation, 2024). The rationale of embracing the SWF model to deal with the issue of investing surpluses is an important one, most of the largest SWFs were adopted for this very reason. All the nations mentioned above ran (in the years prior to the creation of their SWFs) and continue to run trade surpluses. This is certainly not the case in the United States, as is seen below.
Why Would the US Want a SWF?
President Donald Trump has highlighted three main reasons for his longing for a US Sovereign Wealth Fund:
1. Its profit generation ability would aid in reducing the US’s debt, which presently sits at 124.35% of its GDP, the highest peacetime, out-of-pandemic level in history. This reason goes against the typical use of a SWF, which is finding ways to invest trade surpluses to generate long-term wealth creation and preservation, not to reduce government debt levels. The previous creation of SWFs has not coincided with a reduction in national debt levels. In fact, in the UAE, as more SWFs (Investment Corporation of Dubai, 2006; Emirates Investment Authority, 2007; Mubadala Investment Company, 2017) have been founded, government debt-to-GDP levels have risen. However, Sovereign Wealth Funds do have the ability to ease government debt. Returns can be used to support their domestic fiscal health and act as a buffer in economic downturns, reducing the need for the government to borrow heavily to regenerate economic growth. The Abu Dhabi Investment Authority played a key role in providing capital to Citigroup during the financial turmoil of 2007-08 (Citigroup.com, 2007). The perceived cushion and excess capital that a US SWF would provide would rally markets, at least for the short term.
2. Infrastructure investment and job creation. A more traditional reason, SWFs have often used their returns to finance massive infrastructure projects, helping in the transformation of the UAE, Singapore and in financing Saudi Arabia’s Vision 2030.
3. To compete with other nation’s SWFs and extend the US’s global influence. Perhaps the most patriotic reason of them all. However, the US’s private-sector assets under management far surpass that of any Sovereign Wealth Fund. BlackRock has $11 trillion of Assets Under Management (AUM), whilst the largest SWF in the world, Norway’s Fund, has an AUM of under $2 trillion.
How Would a US SWF be Funded?
Due to the US running high deficits and debt levels, atypical ways of financing the fund would have to be explored. President Trump has said that his tariffs will fund this idea. However, many members of his staff have indicated that tariffs will be used by the administration as more of a negotiation tactic than a strict policy. Furthermore, it would be logical for the US to use excess tariff revenue toward directly reducing debt levels instead of pooling them into a fund where immediate returns are not promised. Tariffs could, however, provide an important mechanism for slowing US imports and forcing companies to relocate to the US, reducing trade deficits and providing a catalyst for the creation of a Wealth Fund. The US could, in addition to tariffs, fund this project by becoming a more export-orientated economy. The primary exports from the US are Refined and Crude Petroleum, totaling $256 billion in 2022, according to OEC World. The US is the largest exporter of Refined Petroleum in the world, and President Trump’s “Drill baby drill” policies are set to increase US oil extraction and petroleum exports. According to the US Energy Information Administration, the US produced an average of 12.9 million barrels of crude oil a day (bpd) in 2023. Secretary of the Treasury Scott Bessent aims to increase this by 3 million bpd. This increase would boost the real figure of US petroleum exports to approximately $300 billion, assuming a price decline and all extra production is exported. This, along with the plan to incentivize companies to relocate to the US by tariffing those who choose not to, would reduce the US deficit and open the possibility of creating a SWF. It is important to note that trade surpluses, although they typically precede the creation of these funds, are not a requirement – this was seen in Singapore’s creation of its investment group in 1981 after recording larger trade and current account deficits (as a percentage of GDP) than the US currently possesses (Trading economics, 2009).
Headwinds Ahead of the Creation of a US SWF
Apart from deficit and time issues, there are two large challenges to overcome in the creation of a US SWF: one economic and one social. On the economic front, a strengthening US dollar may reduce or even eliminate the effect of tariffs deterring imports. As the dollar strengthens, the cost of foreign currency decreases, making imports cheaper and eroding the effect of tariffs. The dollar index has increased by 8% since October due to an outlook of sticky inflation and interest rates in 2025. The social issue that a US SWF may create is the perception of increased government control over the private sector; this would go against the libertarian nature that the US was built on. The establishment of this new government organization might be seen as at odds with the objectives of the libertarian-influenced Department of Government Efficiency.
Conclusion & Suggestion
President Trump would likely want a SWF in place before the end of his presidential term. This would prove extremely difficult to fund with the typical surplus mechanisms as the US has and continues to run large trade, current, and fiscal deficits with high government debt levels. Adding to the difficulties, Secretary Scott Bessent’s aim of increasing oil production by 3 million barrels a day has a target date of 2028. Should a SWF be created, the most effective and quickest way to do it would be to create a wealth fund for an individual state. Texas fits the typical economic structure of nations with SWFs. Texas has significant trade surpluses (more than most countries with successful SWFs) and is the largest exporter of all US states. Texas also stands to gain the most from Secretary Scott Bessent’s aim to increase oil production, which would further increase Texan surpluses. Texas already has two wealth funds intended to support schooling and university education in the state (SWFI, 2025), consolidation and the creation of one central fund should be achievable.