WSJ What’s News - What Would an American Sovereign-Wealth Fund Look Like?

Episode Date: September 10, 2024

A.M. Edition for Sept. 10. As Kamala Harris and Donald Trump gear up for their first–and only–scheduled debate tonight, the WSJ’s Greg Ip discusses a policy idea that has garnered traction across the aisle–and how it might work in practice. Plus, the EU’s top court upholds rulings ordering Apple and Google to pay billions as the bloc tries to rein in alleged abuses by Big Tech. And, Israel launches a deadly strike in a humanitarian zone in Gaza, saying it’s targeting a Hamas cell. Luke Vargas hosts.  Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

OCI is the single platform for your infrastructure, database, application development, and AI needs. Do more and spend less like Uber, 8x8, and Databricks Mosaic. Take a free test drive of OCI at oracle.com slash wall street. Apple and Google fail to overturn multi-billion dollar rulings against them in Europe. Plus, Israel launches a deadly strike in a humanitarian zone in Gaza, saying it's targeting a Hamas cell. And ahead of tonight's presidential debate, we'll look at a pair of economic policy ideas that have garnered traction across the aisle and consider how they might work in practice.

There's a pretty decent possibility we'll have something that looks or smells like a sovereign wealth fund, but I would not expect it to be large or consequential. And the reason why is that, first of all, money is scarce. It's Tuesday, September 10th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. The European Union's top court today has handed down a pair of rulings that will force Apple and Alphabet's Google to pay billions of dollars as competition authorities in the

bloc continue their efforts to rein in alleged abuses by big tech companies. in the block continue their efforts to rein in alleged abuses by big tech companies. In one decision, the court upheld an order for Ireland to recoup up to $14.4 billion from Apple. That follows a 2016 determination from the EU's executive arm that Ireland granted Apple benefits that violated EU rules on state aid and allowed the company to pay substantially less tax than it owed. Apple said in a statement it was disappointed with the decision and always pays the taxes it owes. Separately, the court upheld a fine imposed by EU antitrust officials on Google,

totaling nearly $2.7 billion, stemming from a 2017 allegation that it abused its market dominance as a search engine by promoting its own comparison shopping service in search results and demoting those of competitors. A Google spokesperson said the company had already made changes to comply with the European Commission's decision. Authorities in the Gaza Strip say an airstrike has hit a humanitarian zone where Israel's military has pushed civilians to go to avoid fighting in other areas, killing dozens of Palestinians. Israel's military says it struck a Hamas command center overnight, targeting what it called a significant number of militants, and says it used precision weapons and aerial

surveillance to limit civilian casualties. Israel, which has faced severe international criticism for the high civilian death toll in the war, has struck the humanitarian zone before. It blames militants for hiding among civilians. The U.S. House of Representatives has passed a bill designed to curb the operations of Chinese companies in the U.S. The BioSecure Act was passed by more than 300 lawmakers and aims to bar federal contracts with certain biotech entities alleged to have connections with the Chinese military.

And while the bill still needs to be passed by the Senate before being sent to President Biden, Journal reporter Sherry Queen in Singapore says it's already weighing on the stock of China-based biotech firm Wuxi Aptek and its sister company Wuxi Biologics. These companies are maybe not household names, but they play a very important role

in the contract drug making industry. Any development at this stage could trigger investors' nerves and send the shares down. What I heard from analysts today, they think there are still a lot of uncertainties regarding the news, what's going to be next, whether the Senate will adopt a house version of the bill or its own version or attach it to a bigger spending bill. That's one thing we don't know. Both companies have denied posing a threat to national security.

And in other markets news today, shares in Oracle are up more than 8% off hours after the cloud software firm posted better than expected results and announced a new partnership with Amazon Web Services. And earnings from GameStop and Petco are due today, though many investors are looking ahead to the release of U.S. consumer inflation data tomorrow and a producer price index update on Thursday. Coming up ahead of tonight's presidential debate, we'll look at a pair of economic policy ideas that top Democrats and Republicans seem to both be getting on board with.

We've got that story after the break. AI may be the most important new computer technology ever, but AI needs a lot of processing speed, and that gets expensive fast. Upgrade to the next generation of the cloud, Oracle Cloud Infrastructure, or OCI. OCI is the single platform for your infrastructure, database, application development, and AI needs. Do more and spend less, like Uber, 8x8, and Databricks Mosaic. Take a free test drive of OCI at oracle.com slash wall street, oracle.com slash wall street. Well ahead of tonight's presidential debate, let's turn our attention now to two policy

proposals that are having a bit of a moment and that have made some unlikely allies across the aisle. The creation of a U.S. sovereign wealth fund and the elimination of the tax on tips. On the former, here was former President Donald Trump last week. We'll create America's own sovereign wealth fund to invest in great national endeavors for the benefit of all of the American people. Why don't we have a wealth fund? Other countries have wealth funds. We have nothing.

And it didn't take long for President Biden to weigh in on the matter, too, with White House officials saying after Trump's appearance that they had been working for several months on designing such a fund that would provide capital to advance strategic interests like early-stage technology. So how would such a fund work? Could it work within the American political context or is all of this just a bunch of campaign slogans? Well, Journal Chief Economics commentator Greg Ip has been considering some of those very questions and he joins me now with more. Greg, let's cover the basics here. What exactly are Trump

and the White House proposing as far as we understand it? There's not a lot of detail out there. And also the Trump administration and the Biden White House have come at this in very, very different ways. But let's start with Trump. So we actually know almost nothing other than the few lines he had in last week's speech, he says he wants to invest in infrastructure and medical research and all those things.

And we already do all those things, We just don't do them through a mechanism that we call a sovereign wealth fund. For example, states and local governments own and operate and build enormous amounts of infrastructure, such as highways and airports. The White House plan is somewhat narrower and it's also been underway for some time now. The idea is that they have identified certain investments

that are sort of beyond the scope of the private sector. Let me give you an example. Everybody knows that critical minerals are important for economies now. China dominates their production and refining things like lithium and rare earths. But because they are able to control the price and the market, they can deter other companies from going in there to invest in these things because they aren't sure if they'll make a profit. Maybe this is a place for a sovereign wealth fund operated by the United States to offer some long-term patient capital. All right, so some big differences there and we should note before we go any further that it's not clear whether Vice President Kamala Harris supports this idea. That said, one question

that would obviously be asked about either a White House or Trump campaign proposal here is how would it be funded? Greg, do we have any details on that from either camp? Again, very few details here. In the case of the Trump proposal, all he said was that it would be funded with tariffs that he plans to impose on our allies. The only problem with that is that tariff money has already been earmarked for all his other promises, including cutting taxes. As for the White House, because their proposal is somewhat more modest, it's probably less of an issue. But there is a recognition that Congress would have to identify seed money

in the form of an appropriation, or perhaps earmarking an existing revenue stream. But once the fund is in place, over time, one would hope that certain parts of the portfolio would be profitable enough to finance with other parts which are not immediately profitable or will not be profitable. Sort of what you're touching on there is at the heart of many of the other sovereign

wealth funds around the world, right? That these are often in countries whose economies are driven by natural resources. Is that one of the things that might distinguish however the US might go about this from other prominent wealth funds around the world? Historically the largest sovereign wealth funds were associated exactly as Historically, the largest sovereign wealth funds were associated exactly, as you say, with countries that were big exporters of oil and other natural resources, such as Norway, such as Saudi Arabia, such as the United Arab Emirates

and Kuwait. And they created these funds because this huge inflow of oil revenue had the risk of distorting their economies and leading to inflation, unless they somehow recycled it back to the rest of the world. So essentially they created these gigantic funds which would invest in a portfolio of assets across the world and the income from those assets would over time come back to the country for the benefit of its own citizens. For example the Norway Sovereign Wealth Fund, this is

operated much as a pension fund the United States would be, where its sole mandate is to maximize return. It's not really intended to further the strategic interests of the Norwegian government. That distinguishes that concept of a sovereign wealth fund from what you have with respect to say China, India, or what the White House is thinking about here. They're explicitly investing in things that are meant to enhance national interests, industries that you want to develop, or building up infrastructure links to countries that are your allies or that you wish to be your allies. An important distinction there and another complexity I imagine would come up is who decides what is in the strategic interest of the U.S. to invest in. This is not necessarily

something that would always be seen the same way between administrations. Oh yes, so one of the reasons the United States has historically avoided too much of a role of the federal government in private business is precisely because it's afraid of things like rent-seeking and political self-dealing, right? And less nefariously, there's always a temptation to layer on all other sorts of mandates on these investments. Well, if you're going to invest taxpayer money, it should only go to producing products in the United States. other sorts of mandates on these investments. Well, if you're going to invest taxpayer money, it should only go to producing products

in the United States. Well, what if doing that isn't profitable? So there are enormous governance questions that have to be settled before you can determine whether either of these is a viable concept. And finally, Greg, if you had to handicap this, how likely do you think it is any of these plans could actually come to bear?

I think there's a pretty decent possibility we'll have something that looks or smells like a sovereign wealth fund, but I would not expect it to be large or consequential. And the reason why is that, first of all, money is scarce. We're running a near $2 trillion deficit and nobody really has any good plans for how to get that thing down. And the other thing we'll discover is that we're doing a lot of this already through things like the Department of Energy, through things like the National Institutes of Health. I can imagine a scenario where a president takes a lot of activities

that the United States is already undertaking and rebrands them as a sovereign wealth fund. It's a great marketing label, but on the ground, not that much changed. I've been speaking to Wall Street Journal Chief Economics commentator, Greg Ip. Greg, thank you so much as always. Thanks for having me. And let's turn now to the idea of excluding tips from income tax, one of the few things that the two presidential candidates on stage tonight seem to agree on. However, it's not an idea that many economists support. Here's what Vanessa Williamson, a fellow at the Urban

Brookings Tax Policy Center, told our colleagues at WSJ Video. So one of the things we look for in tax policy is that it's fair. That is to say that people who have the same income are paying about the same amount of taxes. But this policy would definitely violate that rule, because, for example, if you're a delivery worker who delivers food, you probably get tips. And if you're a delivery worker who delivers packages, you probably don't.

Now maybe you guys make the same income, but you're going to be getting very, very different tax preferences. And that violates a pretty basic rule about how we want tax policy to function. And Williamson says the idea could have unintended consequences too. One of the groups that you might imagine would support such a policy is the restaurant industry, right? Because to the extent they can push the cost of employing people onto customers, that's a big win for them. And this would basically be a subsidy for that part of tipped workers' income. So it would put pressure downward on wages and it would push more of the responsibility for paying people for the work they do onto the customers directly rather than the employers

who are supposed to be putting those bills. For more on this topic, look for the full video on wsj.com. And before we go we touched earlier on the war in Gaza. That conflict has been going on for nearly a year and with that milestone coming up we want to know your questions about what it would take to free the hostages and end the fighting. To weigh in, send a voice memo to wnpod at wsj.com or leave a voicemail with your name and location at 212-416-4328 and we just might use it on the show. And that's it for What's News for Tuesday morning. Today's show was produced by Kate Boulevant and Daniel Bach

with supervising producer Christina Rocca, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening. Zscaler extended its Zero Trust architecture with powerful AI engines trained by 500 trillion daily signals to prevent ransomware and AI attacks that target business. Zscaler Zero Trust plus AI. Learn more at zscaler.com slash Zero Trust AI.