Trump’s quest for his own sovereign fund gets $840bn boost from Japan

The White House said the president would have final say over where the money goes and that the US would keep 90pc of profits on any investments.

President Trump raised the idea of a U.S. sovereign-wealth fund while campaigning for his second term. Picture: AP

President Trump has long wanted a US sovereign-wealth fund that would give him free rein to make big investments in key sectors. Japan could help him get the next best thing.

As part of a trade deal reached this week, Japan agreed to invest $US550 billion ($839bn) in projects across strategic US industries, including energy, semiconductor manufacturing and shipbuilding. The White House said Trump would have final say over where the money goes and that the US would keep 90 per cent of profits on any investments.

One Trump official said the administration was thinking of the arrangement like a sovereign-wealth fund that Japan is funding.

The money will take the form of equity, loans and loan guarantees and come from the Japanese government, not private companies, said Senator Bill Hagerty (Republican, Tennessee), who met Thursday with a Japanese delegation.

He said the deal doesn’t include any private-sector commitments already made, such as the Japanese investment-firm SoftBank’s pledge to back an up to $US500 billion ($762bn) artificial-intelligence project known as “Stargate.”

“This is separate from all of that,” said Hagerty, who was ambassador to Japan in Trump’s first term. “This is a Japanese government commitment.”

Donald Trump with Japanese Prime Minister Shigeru Ishiba at the White House in February. Picture: AFP

If the fund materializes as Trump envisions—a significant question—it would give an American president unprecedented power to steer money into the projects of his choosing, potentially with significant impacts on particular industries. It would also put the US government in competition with some of the world’s largest investment firms.

Past trade agreements have included investment pledges, but the Japan deal is unusual, said Christina Davis, a Harvard University professor of Japanese politics who directs its program on US-Japan relations.

“Where this one deviates is the step toward investing at the president’s direction, with the profits going to the US,” she said. “It makes it sound coercive, socialist and unprecedented in any sense of past trade negotiations.”

Trump has sought to play a direct role in the US business world. He has told companies to absorb tariffs without raising prices, has encouraged Coca-Cola to use cane sugar in its flagship soda and was given a “golden share” in the sale of US Steel to Japan’s Nippon Steel, allowing him broad authority over Nippon Steel’s operation of US Steel.

Senator Bill Hagerty. Picture: Getty Images via AFP

Having an investment fund at his disposal would expand his role in American business.

“This is literally the Japanese government giving Trump $550 billion and says, ‘Go fix whatever you need to fix,’” Commerce Secretary Howard Lutnick said in a TV appearance.

One administration official gave a hypothetical example of how Japanese money could be deployed: The US could fund construction of a semiconductor facility—for, say, Intel—then lease it to Intel and keep 90 per cent of the leasing revenue. The official also offered the example of buying a mine and arranging for a company such as Rio Tinto to operate it.

An agreement in principle

The plan has raised more questions than answers on Wall Street and beyond. Details remain unclear, including whether Japan will have any discretion over projects and the time period during which the investments will be made.

Hagerty said the investment will be overseen by two Japan-backed administrators, Japan Bank for International Cooperation and Nippon Export and Investment Insurance.

One administration official said the funds likely would arrive only as needed, while another said the cadence was still being worked out. “As you know, these deals have been agreed in principle, but they have not been fully papered yet,” Hagerty said. A Japanese government official and Trump administration official said that the sources and structure of the funding are still being determined.

In selecting investments, Trump would have help from the Commerce Department’s US Investment Accelerator, headed by former Morgan Stanley investment banker Michael Grimes. His team will help identify investments and make sure the funds are used properly and expeditiously, people familiar with the matter said.

The size of the commitment dwarfs most investment funds. It is more than twice the size of Japan’s gross foreign direct investment in the US last year, according to a Goldman Sachs research note this week.

Davis, the Harvard professor, suspects much of the money would have to be in the form of loans or guarantees, given that the Japanese government is politically fractured and struggling with debt. “We really can’t evaluate the agreement because it’s so vague at this stage,” she said.

The ambitious Stargate project, which was unveiled at the White House in January and involved a commitment from OpenAI, has already been scaled back, The Wall Street Journal reported last week.

Sovereign-wealth ambitions

Trump signed an executive order in February directing his team to develop a plan for the establishment of a sovereign-wealth fund in 90 days. He had mentioned the idea on the campaign trail, where he called for a fund to invest in areas such as infrastructure and medical research.

“I think in a short period of time, we’d have one of the biggest funds,” Trump said when signing the executive order. “We’re going to create a lot of wealth for the fund.”

But the 90-day deadline came and went without the public release of any plan. Left unresolved was how a country like the US, which continually ran budget deficits, would be able to contribute money.

Trump and allies mused that funds could come from increased tariffs or a complicated deal to remove Fannie Mae and Freddie Mac from government conservatorship. The latter idea hasn’t gained much momentum, with Treasury Secretary Scott Bessent saying it would need to be done carefully to avoid driving up mortgage rates.

Trump administration officials are now pitching Japan’s commitment as the answer.

“We got a $550 billion signing bonus for the country,” Trump said this week.

Wall Street Journal