How a U.S. Sovereign Wealth Fund Could Keep the Dollar Strong and Fund U.S Debt

Donald Trump signed an EO to create a U.S. sovereign wealth fund (SWF). At first, this might seem confusing. Why would a country that runs a budget deficit, create a sovereign wealth fund? And how could it possibly help with the U.S. economy, debt, and the global role of the dollar?

Let’s break it down step by step.

Why the Trade Deficit Matters

The United States runs a large trade deficit, meaning we import more than we export. While some see this as a weakness, it actually serves an important purpose. When foreign companies sell goods to the U.S., they earn dollars. Many of those dollars are recycled back into U.S. financial markets, especially by buying U.S. Treasury bonds. This helps finance the government’s deficit and keeps interest rates lower.

But if we shrink the trade deficit through tariffs, reshoring, or industrial policy, we also reduce the flow of dollars going overseas. That means less foreign demand for U.S. Treasuries. As a result, the U.S. would have to rely more on domestic buyers, which could raise borrowing costs and limit fiscal flexibility. The sectoral balance equation must always be satisfied.

(S−I)+(T−G)+(M−X)=0

Where:

• S = Private savings

• I = Private investment

• T = Taxes collected by the government

• G = Government spending

• X = Exports

• M = Imports Because the U.S. run twin deficits (fiscal and trade) there must be a surplus in the savings function. But U.S. consumers are spenders not savers hence a majority of those savings come from foreign sources which use their excess USDs to buy treasuries (USTs) to preserve wealth.
  

The Role of a Sovereign Wealth Fund

A U.S. sovereign wealth fund would not be a traditional savings account like those used by oil-rich nations. Instead, it would be a financial strategy designed to stabilize the global dollar system and maintain strong demand for U.S. debt. Here is how it could work.

First, the U.S. creates a sovereign wealth fund, possibly funded by selling short-term Treasury bills or using revenue from tariffs or public asset sales.

Next, the fund invests abroad, especially in countries like India, Vietnam, Indonesia, and the Philippines. These investments would target local government bonds, infrastructure projects, or business financing.

These capital flows would help stabilize those countries’ currencies and support their financial systems. In many of these nations, access to dollars is essential for keeping inflation low and maintaining economic stability.

In return, their central banks or newly formed sovereign wealth funds could reinvest the dollars they receive into U.S. Treasuries. This restores a steady demand for American debt, even though fewer dollars are circulating through trade.

Replacing Trade with Capital Flows

This creates a new kind of system. Instead of relying on trade to bring dollars back to the U.S., we use investment. The U.S. provides capital and financial stability, and foreign countries return the favor by buying our debt. This model offers many benefits.

For foreign countries, it means more control over their own economies, less dependence on trade with the U.S., and more tools to fight inflation and currency swings.

For the U.S., it means strong ongoing demand for Treasuries, even if global trade patterns change. It also helps maintain the central role of the dollar by building long-term financial ties.

Can It Work? A Simple Example

Let’s say the U.S. trade deficit shrinks by 10 percent, reducing foreign demand for Treasuries by about 60 billion dollars. If five Asian countries each create a sovereign wealth fund with 100 billion dollars, and they allocate just 10 percent to U.S. Treasuries, that adds up to 50 billion dollars per year. That almost covers the gap. As more countries create these funds and their reserves grow, the U.S. can rely less on trade imbalances and more on stable capital partnerships to fund its debt.

What About the Deficit?

It is true that the United States runs a large fiscal deficit, but that does not mean a sovereign wealth fund is off the table. The U.S. borrows in its own currency and has deep, liquid capital markets. As long as the fund is designed carefully and managed prudently, it can be funded with short-term borrowing and invested in productive, long-term global assets.

This is not about hoarding savings. It is about using capital to stabilize markets, build partnerships, and secure the long-term role of the dollar.

A Smarter Way to Lead

In a world where global influence is shifting and financial systems are becoming more fragmented, the U.S. needs new tools. A sovereign wealth fund could be one of them.

It would allow the United States to provide financial stability, build strategic alliances, and protect the dollar’s global role. Instead of depending on trade imbalances, the U.S. could export stability, receive capital in return, and keep interest rates anchored.

This is not just about money. It is about leadership, trust, and long-term resilience.