Trump turns ally investments into $10 trillion US 'sovereign wealth fund'

Business Standard

3 days ago

US President Donald Trump's trade policy has tied the financing of new American factories to the easing of some tariffs for foreign allies, a strategy that could channel more than $10 trillion into US manufacturing and critical industries, Treasury Secretary Scott Bessent said in a Fox Business interview on Wednesday (local time).
'We have agreements in place where the Japanese, the Koreans, and to some extent the Europeans will invest in companies and industries that we direct—largely at the President's discretion,' Bessent said. 'Other countries, in essence, are providing us with a sovereign wealth fund.'
Trade allies 'buying down tariffs' with US factory investment
The arrangement, described earlier by Commerce Secretary Howard Lutnick as 'buying down tariffs', involves substantial sums.
'Take Japan, for example—we're going to have $550 billion, and they will reinvest that back into the US economy. We will be able to direct that as we reshore these critical industries,' Bessent said. The targeted sectors include semiconductors, magnets, pharmaceuticals, steel, cars, and defence technology. 'We are trying to derisk the US economy from what we saw during Covid,' he added.
Earlier today, Mitsubishi Corp announced a $600 million investment for a 30 per cent stake in Arizona's Copper World project, weeks after the US imposed a 50 per cent tariff on all copper imports.
'Donald Trump loves factories'
'The President loves new factories,' the host said during the exchange. 'He'll take rehabbed old factories, but he loves new factories—especially in strategic areas you are mentioning: semiconductors, pharmaceuticals, cars, steel, defence technology. That's the heart of his whole trade policy—he wants new factories.'
'And if a couple of these countries have to pay up for the privilege of helping us—fine,' the host added.
Bessent responded: 'He likes factories and the factory workers love him… Those steelworkers—he is their President.'
'He wants Main Street to win… Within the next year or two, Main Street's going to hit a new high too,' Bessent said.
No tariff reduction consideration for China
Not all tariffs will be considered for reduction. 'Twenty per cent of the tariffs are what we call the fentanyl tariffs,' Bessent said. 'We will need to see months, if not quarters, if not a year of progress on that before I could imagine those tariffs coming down.'
He noted that China is the source of the precursor chemicals for fentanyl, which are shipped via Canada and Mexico into the US, causing an estimated 100,000 to 200,000 American deaths last year.
Asked whether China could participate in the investment-for-tariff-reduction plan, Bessent replied: 'My sense is no… many of those [industries] need to be reshored away from China.'
Tariff revenue touches $300 billion, could cross $10 trillion
The scale of the trade-and-investment initiative is significant. 'On tariff income alone, I'd been saying $300 billion, but we'll likely revise that up—well in excess of 1 per cent of GDP,' Bessent said. 'Add the sovereign investments and private industry commitments, and we're well over $10 trillion.'
Supreme Court hearing on Trump tariffs
However, Trump's trade policy is facing court challenges, with the Supreme Court expected to hear the case in October and deliver a ruling in early 2026. In the meantime, tariffs are likely to stay in place while litigation proceeds.
'If the tariff court rules against us, the tariffs will likely continue while it's enjoined. Then it goes to the Supreme Court in October, with a ruling expected in January,' Bessent said. 'The more deals we've done, the harder it is for SCOTUS [Supreme Court of the United States] to rule against it.'