Nathan Gardels is the editor-in-chief of Noema Magazine. He is also the co-founder of and a senior adviser to the Berggruen Institute.
During the presidential election campaign, Donald Trump weirdly called his opponent “Comrade Kamala” and labeled her a “Marxist/Communist.” Stranger still, it is Comrade Trump who is now socializing the private sector through partial state ownership of the means of production.
The Trump administration is certifiably right-wing on social and cultural issues from gender identity to immigration. It is undeniably authoritarian in its pursuit of ideological conformity in universities, its persecution of political enemies, politicization of the Justice Department, Federal Reserve and Centers for Disease Control, denigration of the judiciary and erosion of the division of powers with Congress and state governments through executive fiat.
Yet, if we stick to the orthodox way of ideological framing, Team Trump is decidedly left-wing with respect to state intervention in the free market.
In fact, one can say he is more progressive in some ways than Joe Biden. Under the CHIPS Act to rebuild the microchip manufacturing prowess of the United States, the Biden administration allocated up to $11 billion in subsidies and preferred loans to Intel — with no public stake in return when the company prospered down the road. Trump has been more direct and more effective by extracting a 10% ownership share by the American government in Intel in exchange for the CHIPS capital infusion. In short, the public purse will benefit directly from the upside of future profits.
It comes as no surprise that Senator Bernie Sanders agrees with Trump on this score.
The president has similarly announced he plans for the U.S. government to take 15% of the revenue pocketed by Nvidia and Advanced Micro Devices from their considerable chip sales to China. The Pentagon is also taking a stake in the rare earth mining company MP Materials.
When other nations — from France to Italy to Germany, not to speak of China — have taken big stakes in private companies, the free-market ideologues who used to dominate American capitalism castigated their “socialist” ways. Under Trump, America is joining the ranks of state-managed capitalist societies that intervene in the private economy as part of an industrial strategy to keep their nations competitive and prospering.
Team Trump has floated the idea that these new revenue-share streams and ownership stakes, in tandem with income from tariffs, could provide the seed capital for a Sovereign Wealth Fund (SWF) not unlike highly successful state-managed funds from Singapore to Norway.
The point of an SWF is to build up capital resources through a return on investments for improving the well-being of all citizens in one’s own country. This is done in different ways, for example by investing in infrastructure that benefits everyone in society, or in bolstering industries on the home front either to boost employment or maintain an edge of resilience and measure of self-reliance in areas that affect national security, from technology to pharma.
In some cases, the return on investments from the SWF is distributed directly to individual citizens or families in the form of pensions, trust fund payouts that can be used for health and education, or dividends from the exploitation of the national patrimony of natural resources.
The progressive quality of an SWF depends, in the end, on whether its investments and the revenue from their returns improve the well-being of the population as a whole by broadening access to social wealth (infrastructure, health care, higher education) or directly accruing to the individual accounts of citizens through a distributed return on investment.
De-Risking And Crowding-In
The promising side of Comrade Trump’s statist innovation has been laid out convincingly by NYU professor Winston Ma.
The arguments in the past against an SWF in a robustly free market economy like the U.S. is that it would crowd out private investors. When an SWF is driven by an industrial strategy, Ma argues, “far from displacing private capital, it is increasingly proving to be a powerful ‘crowd in’ catalyst for public-private investment partnerships. … It is the general practice of global sovereign wealth funds to seek both strategic industrial promotion and financial returns in their investments. The sovereign capital could avoid crowding out and unlock private capital when serving as a co-investment platform.”
Ma continues:
Nowhere is this more evident than in the Department of Defense’s (DoD) $400 million equity investment in MP Materials, the only rare earth producer in the United States. Under the Defense Production Act, the Pentagon is becoming MP Materials’ largest shareholder, with a potential 15% stake and long-term offtake agreements to buy 100% of the magnets made at the company’s new facility.
This investment enables the United States to secure critical mineral flows, countering China’s dominance in this space. The DoD’s commitment has attracted $1 billion in private financing from JPMorgan Chase and Goldman Sachs to build MP’s new “10X” magnet manufacturing facility in Texas.
Wall Street followed because the US investment de-risked the project with guaranteed procurement and revenue certainty.
As it stands now, Trump’s idea differs from the way other SWFs operate in that it is bottom-up, “transaction-driven” and decentralized rather than the centralized, top-down approach practiced elsewhere.
This has the benefit of being close to market signals and thus prone to making deals that are likely to succeed because all the right incentives are in place. The disadvantage is that it too easily invites favoritism and corruption in a regime that has aggressively politicized the impartial and disinterested functioning of governing institutions.
The Worry
What has made the SWFs of Singapore or Norway so successful is not only their global investment strategy, but also strong guardrails against the funds being used for self-dealing and crony capitalism through political connections. There have been other cases on the opposite end of the spectrum, most notably the 1Malaysia Development Berhad, where billions were embezzled by the prime minister and other officials to pay for lavish lifestyles.
Without due vigilance, the worst can happen in the best of circumstances. When I headed the Pension Investment Unit for the State of California several decades ago, a political appointee to the investment committee of the (now) $550 billion Public Employees’ Retirement System finagled a direct investment in a nonexistent gold mine and absconded with the funds, arrested as he was fleeing to the Mexican border in his Rolls-Royce.
The greatest worry about Comrade Trump’s approach is that an otherwise worthy policy is being highly personalized in an administration where, even in these early days, close associates and relatives appear to be benefiting from White House decisions, whether in the form or real estate deals, tariff exemptions or official hype for cryptocurrency start-ups.
The possibility of corruption afflicts all governing regimes and is no reason not to pursue promising, if unorthodox, policies. The rules of the game and its guardrails thus need to be clearly established and rigorously observed.
A government will only be trusted as a steward of vast public funds that will accumulate in an SWF to the extent it respects the impartial rules and institutions of democratic governance across the board.
