Trump’s Bold Move: Stockpiling U.S. Wealth with a Sovereign Wealth Fund – The Pros, Cons, and Opportunities for Small Businesses

Donald Trump has recently signed an executive order to establish a sovereign wealth fund, aiming to stockpile and invest U.S. wealth instead of spending it. He stated, “the word tariff to me is the most beautiful word in the entire dictionary.” While this concept might sound boring at first, it holds significant implications for the U.S. economy and small businesses.

In this blog post, we’ll explore the real impact of Trump’s proposed 25% tariff on Canada and Mexico, and how small businesses can navigate and even thrive amidst these changes. We’ll also delve into the intricacies of a sovereign wealth fund and why Trump is advocating for it.

Understanding the Sovereign Wealth Fund

What Is a Sovereign Wealth Fund? A sovereign wealth fund is essentially a giant government piggy bank. It involves stockpiling money and investing it in various assets, including the stock market, with the goal of preserving wealth for future generations. According to Trump, this fund would keep wealth for grandchildren and great-grandchildren.

Trump’s Vision: Trump envisions creating one of the largest sovereign wealth funds, which would invest in great national endeavors such as highways, airports, and transportation infrastructure. He believes that this fund would help keep wealth for future generations and ensure long-term economic stability.

Challenges and Questions

Government Debt: The U.S. government debt is at an all-time high of $35 trillion, with a significant budget deficit. This raises the question of how the U.S. can stockpile money when it has no money to stockpile. The deficit has increased by 40%, and spending is out of control.

Investment vs. Spending: Trump has already suggested using the sovereign wealth fund for various expenditures, such as potentially acquiring TikTok. This raises questions about the long-term viability of the fund and whether it will truly be used for investment or just another source of spending.

The 25% Tariff: What Does It Mean?

Impact on Prices:

• Food and Medicine: Higher tariffs on food and medicine from Canada and Mexico would lead to increased prices for these essential goods, impacting consumers’ wallets directly.
• Automobiles: For example, a car that previously cost $40,000 could now cost $50,000 due to the added tariff. The company pays the tax, making the vehicle more expensive for consumers, and the U.S. government pockets the difference.
• Construction Materials: Tariffs on lumber and concrete would increase construction costs, affecting the housing market and infrastructure projects.

Economic Implications:

• Inflation: Higher prices for essential goods can contribute to inflation, reducing consumers’ purchasing power.
• Job Losses: Increased production costs can lead to reduced demand for goods, potentially causing job losses as companies adjust to lower production levels.

Impact on Canada and Mexico

Canada’s Trade Relationship with the U.S.: Canada’s trade relationship with the U.S. is substantial, with approximately 67-70% of its total trade conducted with its southern neighbor. A 25% tariff on goods entering the U.S. from Canada would act as a 25% tax on these goods, leading to significant economic fallout.

Mexico’s Role: Mexico is a major exporter of goods to the U.S., including fresh produce. In 2022, about half of all fresh fruit and almost 90% of vegetables imported into the U.S. came from Canada and Mexico. These products could become 25% more expensive overnight.

Supply Chain Disruptions:

• Automotive Industry: The automotive industry is a prime example of the complexities introduced by tariffs. Cars are not built entirely in one country; different parts are manufactured in various locations and often cross national borders multiple times during production.
• Increased Costs: A 25% tariff would charge a tax every time these components cross the border, leading to significant cost increases for manufacturers and consumers.

How the Sovereign Wealth Fund Might Work

Monetizing Assets: Trump has suggested monetizing the asset side of the U.S. balance sheet. This could involve selling assets such as land, real estate, infrastructure, and military equipment or borrowing against them by issuing bonds. The federal government directly holds more than $5.7 trillion in public assets, and including reserves in oil, minerals, and natural gas, the sum is even higher.

Risks and Downsides: Monetizing assets is similar to taking out a mortgage—if you borrow against assets, you pay interest. The hope is to make more on the stock market than the interest paid. However, the stock market does not always go up, and the collateral at risk includes national assets.

Alternative Funding through Tariffs: Another option is to fund the sovereign wealth fund through tariffs. Trump claims that tremendous amounts of money will be taken in through tariffs and other intelligent measures. However, the proposed tariffs on Canada and Mexico have already been paused, and there is no shortage of things Trump wants to use that tariff money for.

Impact on Small Businesses and Strategies to Thrive

Diversify Supply Chains:

• Alternative Suppliers: Explore alternative suppliers in other countries or domestic sources to reduce dependency on Canadian and Mexican imports.
• Local Sourcing: Support local producers and businesses to mitigate the impact of tariffs on imported goods.

Optimize Financial Management:

• Budget Adjustment: Adjust financial budgets to account for potential price increases in essential goods and services.
• Cost Reduction: Implement cost-saving measures across operations to absorb tariff-related expenses.

Enhance Competitive Edge:

• Brand Differentiation: Build a strong brand identity and offer unique value propositions that set your business apart from competitors.
• Customer Experience: Invest in improving customer experience, including personalized service, loyalty programs, and seamless online shopping experiences.

Leverage Government Support:

• Advocacy: Engage in advocacy efforts to influence trade policies that protect small businesses and consumers.
• Financial Assistance: Seek government support and incentives to offset the negative impacts of tariffs.

Conclusion

The proposed 25% tariff on goods from Canada and Mexico, coupled with the establishment of a sovereign wealth fund, would have far-reaching impacts on both countries’ economies and everyday life for American consumers. From increased costs for imported goods to the complexities faced by the automotive industry, the consequences are significant. For small businesses, navigating these challenges requires strategic planning, innovation, and adaptability.

By understanding the potential impacts and taking proactive measures, small businesses can survive and thrive despite the uncertainties of trade policies. Whether it’s diversifying supply chains, optimizing financial management, or enhancing competitive edge, there are steps that businesses can take to protect themselves and continue to grow.

As the global trade landscape evolves, staying informed and adaptable will be key to success. Embrace these strategies, and you’ll be well-prepared to face whatever challenges lie ahead.