| I’m Chris Anstey, an economics editor in Boston. Today we’re looking at the US president’s plans for a sovereign wealth fund. Send us feedback and tips to ecodaily@bloomberg.net or get in touch on X via @economics. And if you aren’t yet signed up to receive this newsletter, you can do so here. - China slapped tariffs on US goods and is probing Google in a retaliation that analysts call restrained. Traders are now watching for a weakening of the yuan.
- Meanwhile President Donald Trump delayed tariffs on Canada and Mexico, underscoring doubts on whether he might prove a paper tiger on such threats.
- Chicago Federal Reserve President Austan Goolsbee favors caution in cutting interest rates amid uncertainty introduced by Trump.
You’ve heard of sovereign wealth funds. Now get your head around the idea of a sovereign leverage fund — effectively what Trump and his aides are eyeing for the US. Sovereign funds have been around for decades, with Kuwait credited with establishing the first in 1953, even before it gained independence. They’re typically found in nations with significant current-account surpluses, often thanks to natural resource exports, as is the case with Kuwait and its oil. China’s is slightly different, with its biggest fund, China Investment Corp., having been carved out from a portion of the country’s official foreign-exchange reserves. Those reserves were accumulated from big trade surpluses, so the general principle still holds. The US instead runs large current account deficits. It also lacks any notable foreign-exchange assets. Nevertheless, Trump on Wednesday signed an executive order to begin a process aimed at establishing a sovereign fund. From what Treasury Secretary Scott Bessent added, the hazy picture that emerges is an entity that will raise funds tied to federal assets as collateral. “We are going to monetize the asset side of the US balance sheet,” said Bessent, a former hedge fund manager. “We are going to put the assets to work. And I think it’s going to be very exciting.” Last month, he similarly said at his Senate confirmation hearing that “fantastic assets” held by the US could be leveraged for “revenue-generating opportunities.”  Trump signs an executive order during a ceremony with Bessent and Lutnick. Photographer: Chris Kleponis/CNP While other nations’ sovereign funds often go into stocks — Norway’s, the world’s biggest at $1.8 trillion is mostly invested in equities — what exactly the US one would do is unclear. Trump, speaking at the Economic Club of New York last September, said it would go to “great national endeavors.” On Monday, Trump indicated that if the government got involved in a deal for TikTok’s US assets, those could go into the fund. He also indicated the fund would be big, saying “eventually” it would catch up to Saudi Arabia’s, which currently weighs in around $925 billion assets under management. Howard Lutnick, Trump’s nominee as Commerce secretary, also suggested the example of the government obtaining equity warrants in companies providing Covid vaccines to the government. (Historical aside: the US Treasury obtained warrants in big banks during financial-crisis bailouts.) Joseph Brusuelas, chief economist at RSM US LLP, viewed Trump’s plan as “an interesting idea that will prove problematic at best,” worrying about issues including oversight. Insufficient transparency was one factor in perhaps the most infamous example of a sovereign fund built on borrowing rather than current-account surplus inflows: Malaysia’s 1MDB. That one didn’t end well. The Best of Bloomberg Economics | - France’s core state budget deficit narrowed in 2024, offering the government some relief as it clings to power in a tussle over repairing public finances.
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As Trump keeps markets guessing with his on-again, off-again tariff threats, economists at Morgan Stanley point out two key takeaways from the 2018-19 episode. 1/ The most significant drag on economic activity isn’t from the tariffs themselves but from the impact on corporate confidence and capital expenditure plans, which in turn affect job creation and weakens domestic demand. 2/ Policy uncertainty resulting from escalating trade tensions is likely to persist. In Asia, Morgan Stanley economists led by Chetan Ahya said in the Feb. 2 note that India and Japan are least exposed to trade tensions given their relatively lower share of goods exports to GDP and strong domestic demand stories. Australia, Indonesia and the Philippines are moderately exposed, they wrote, while China, Taiwan, South Korea, Malaysia and Thailand are most at risk. Bloomberg Economics meanwhile has looked how uncertainty hits the US itself. According to Ana Galvao and Rana Sajedi, the chaos effect could knock almost 1% off America’s industrial production by May next year. Read the full research on the Bloomberg Terminal. | 
