Trump's New Sovereign Wealth Fund: Tariff Dollars for a Funded Pool of Patronage?
Trump has now pitched a US Sovereign Wealth Fund funded by tariffs which is far more extraordinary and bizarre than it sounds.
Hey guys. We really need to start a sovereign wealth fund…
The presentation to the Economic Club of New York by Trump (around 1 hour and 20 minutes) covered a number of topics we are used to hearing, but the recommendation that the US should set up a sovereign wealth fund was the one that stood out in our view as a case of MBS envy.
We would highlight Trump’s direct quote, “We’ll put tremendous amounts of money through all this money we’ll be taking in through tariffs and other intelligent things, and we’re going to have the greatest sovereign wealth fund of them all.”
“This wealth fund will return a gigantic profit which will pay down national debt.”
It was an odd mix of ideas, but the wealth fund sounded like a vehicle for White House control of dollars to use for patronage “Boss Tweed” style as political allies reap the rewards.
It is safe to say Trump is serious about massive tariffs that will be controlled by the White House outside of Congressional checks and balances.
We took it as good news that he did not call the proposed Wealth Fund “beautiful” as he railed against Comrade Kamala. It was one of those moments you want to memorize when the President claims he is going to raise a “gigantic” wealth fund by essentially using tariffs as a de facto border tax. The idea of using tariffs in lieu of income taxes has been brought up before, but the idea (as bad as it was) was never in this form – to grow a wealth fund.
The idea of raising a massive Wealth Fund came with no discussion of a process around governance and how decisions would be made on allocation. Would it require statutory authority? Skeptics might wonder how the US budget gets funded with US buyers of products paying many billions in tariffs detoured to a wealth fund. How do the normal US budgetary demands get addressed with defense dollar needs likely to soar?
There was no clarity on the tariff topic of whether Trump understood that the “buyer pays” or that tariffs would present an expense to anyone or a higher price to a customer downstream. He kept saying the “money that we bring in.” The idea of retaliation from major trade partners was not raised as a risk.
Trump kept referring to “not losing the dollar as the standard” but did not make clear whether his preference was stronger or weaker. That matters in the cost of imports. Any country that did not agree would get hit with even more tariffs. That view on dollar strength or weakness has been mixed in recent weeks with Trump and Vance looking for a weaker dollar (but still the standard).
Trump claims he “saved’ the auto industry from China and will expand steel and aluminum…
The highlight for industry followers might be his view that he had saved the auto industry with tariffs on China autos (when in fact Chinese car sales in the US are negligible).
He cited the need for a massive steel and aluminum industry (he did not mention who would fund that expansion). That steel and aluminum focus might mean aiming at Canada and Europe yet again. He cited the “fastest and strongest recovery ever recorded in history” but never managed to mention he averaged 2% GDP growth and hit 3.0% (rounding up) on an annual basis just once (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).
He aggressively threatened Mexico with high tariffs on autos and especially in the context of Chinese plans to expand capacity in Mexico. That sets the table for even more tariff fights with Mexico on that front in addition to the tariffs he already threatened if a country refuses to take back immigrants in the mass deportation process (Mexico at the top of the list).
He cited his record stock markets (of course, he left out the part where every president since 1980 posted a record S&P 500 and that Biden’s are higher, see All the President’s Stocks 8-21-24). He kept saying that immigrants are pouring in from “countries no one had ever heard of” (a good reason to keep the DOE for a geography curriculum). He promised low rates such as when he was President (ZIRP or the Fed were not cited).
He cited the usual “bounce-back jobs” to explain the solid job performance of Biden. He indicated that, “This happens with pandemics” (given the rich history of massive pandemics covered by BLS data?).
We looked at some of that bounce-back topic earlier today in Goods and Manufacturing jobs (see Goods and Manufacturing: Fact Checking Job Rhetoric 9-5-24). He repeated that Kamala Harris embraces Marxism, Communism, and Fascism. “I was hoping for “economism” in the word salad, but he let me down.
The topics covered included reference to “billions and billions” and “trillions” (in fraud and waste) that were almost frightening in the scale of the exaggerations. Musk would handle that apparently. The speech name-dropped AI and Bitcoin with little substance. Every other market ax where he said we had to be the leaders was devoid of anything specific. Further, he lavished Praise on Orban as “President of Hungary” (he is actually Prime Minister, someone else is President) in a sign of who would control the wealth fund decisions – as in Trump the strongman.
All in, it was a very “entertaining” and revealing speech despite having the energy of a sloth on downers. We would highly recommend listening. It was the proverbial slow motion train wreck. Forward it to your friends. It is illuminating. If you listen, close the window to keep the bats out.
When the presentation ended, Trump marched out to the tune of YMCA (very DEI). After you hear Trump, then listen to an old FDR speech. Or JFK. Or Groucho Marx.
On that note, we look to the governance model of Freedonia for an upgrade.
Get Putin on the phone. I have some kids for the oligarch training program.