(Bloomberg) -- President Donald Trump’s aggressive plans to shake up how the US trades with the rest of the world have fueled speculation about the potential for a grand multinational bargain that would deliberately weaken the dollar — helping American exporters compete with rivals such as China and Japan.
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Trump hasn’t said he’ll do such a thing, but that hasn’t stopped the Wall Street chatter. Analysts have already settled on a name, the “Mar-a-Lago Accord,” after Trump’s private club in Palm Beach, Florida.
Much of the attention has focused on a paper by Stephen Miran, Trump’s nominee to lead the White House Council of Economic Advisers, published in November 2024 when he was a senior strategist at hedge fund Hudson Bay Capital. In it, Miran laid out possible policy options for reforming the global trading system and fixing economic imbalances driven by “persistent dollar overvaluation.”
He’s not the only one in Trump’s orbit thinking along these lines. Before being picked as Treasury secretary, Scott Bessent predicted in June that there would be “some kind of grand economic reordering” in the coming years.
What would a ‘Mar-a-Lago Accord’ attempt to accomplish?
The rough concept is this: Trump has promised to deliver a golden age that will include a renaissance for American manufacturing and exports. He also has longstanding concerns about the size of the US trade deficit, which hit a record $1.2 trillion in 2024, characterizing it as effectively a transfer of wealth abroad.
The trouble is, the dollar’s exchange rate has been historically strong, undermining US competitiveness by making imports relatively cheaper. Indeed, some analysts view the dollar today as overvalued based on economic models that look at things such as the domestic purchasing power of a currency. This overvaluation, and its effects, means Washington has an incentive to reach some kind of deal with other nations that would address the currency strength.
Have similar accords ever been agreed?
Yes. In 1985, a group of governments agreed the Plaza Accord — named after the New York hotel where officials met — against a similar backdrop: high inflation, high interest rates and a strong dollar. A deal was reached between the US and France, Japan, the UK and (then) West Germany to weaken the dollar against their currencies.
The pact was made on the basis that the greenback’s huge move higher was damaging the global economy. The surge in the dollar had been spurred by the tighter monetary policy of Federal Reserve Chair Paul Volcker to bring down inflation, as well as President Ronald Reagan’s expansionary fiscal policy with tax cuts and increased spending.
At the time, Japan was dominating exports and sparking a protectionist backlash from US lawmakers, much like China is today. While the accord succeeded in depreciating the dollar, it was later blamed for strengthening the yen too much.
Plaza was followed in 1987 by the Louvre Accord, which attempted to draw a line under the dollar’s decline and cool the yen’s gains. In Japan, the agreements were blamed for playing a role in the nation’s descent into economic stagnation in the 1990s — a period known as the “Lost Decade” — a lesson that won’t be lost on China as it grapples with its own deflationary pressures, a real estate crisis and manufacturing overcapacity.
How could a ‘Mar-a-Lago Accord’ work?
A traditional approach would involve American trading partners pledging to boost domestic consumption of the goods they produce, reducing their manufacturers’ reliance on exports to the US.
It could also incorporate agreements to intervene in the foreign-exchange market to forcefully tilt currencies in the desired direction, although the market’s gargantuan volume of daily trading — $7.5 trillion at the last count — would make that a challenge.
There could be provisions about interest-rate adjustments too, but central banks are even more independent today than they were at the time of the 1980s accords, making any pledges in that area problematic.
The language from Miran and Bessent last year indicated they favored going beyond previous templates. Miran’s analysis embraces the concept that current account deficits (when the value of a country’s imports exceeds its exports) are the flipside of net capital account inflows (when more money is flowing into the country than goes out). Because the dollar is the world’s reserve currency, other nations keep buying it. That results in a persistently overvalued dollar that weighs heavily on US manufacturing. Any multilateral accord would need to diminish this source of upward pressure on the greenback.
How would US debt figure into the discussions?
One area of recent speculation has centered on the idea of the US Treasury issuing government bonds that don’t pay interest — so-called zero coupons — and mature in 100 years. In his November piece, Miran cited a suggestion written in a June paper by former Credit Suisse analyst and founder of the Ex Uno Plures research firm Zoltan Pozsar, of an agreement between the US and its military partners, whereby in return for American security guarantees, allies are required to buy these century bonds.
Others have raised the idea of the Treasury swapping some of the existing foreign holdings of US government debt for long-dated zero coupons. Allies that refuse to participate could have their security guarantees pulled, or be hit by tariffs, or both.
What would be the consequences of such a restructuring of US debt?
The thinking is that it would help reduce US interest rates and the fiscal deficit, thereby weakening the dollar. But such a radical idea could also risk a crisis of confidence in the $29 trillion Treasuries market.
The federal government’s long-stated debt-issuance mantra is to be “regular and predictable.” Putting pressure on allies to engage in a debt swap or to buy century bonds could do unpredictable damage to the Treasury market’s reputation.
A key reason these securities have long been the world’s benchmark is that they’re viewed as highly liquid — in other words, easy to trade — and subject to the universally understood rule of law. The prospect of upending this landscape is why it’s difficult for many to envision a Mar-a-Lago pact involving debt swaps taking place.
But wait, hasn’t Trump championed a strong dollar?
Both Trump and his economic team have said that the US remains committed to maintaining a strong dollar and have threatened tariffs on emerging-market economies that seek to move away from using the greenback to settle trade. Pursuing a policy that both supports the dollar’s role at the center of the global economy and seeks ways to weaken its value would be a tricky balancing act for the administration.
What are the possible risks of a weaker dollar for the US economy?
A weaker dollar would drive up the cost of imports and could send inflation higher as a result. It could also scare off investors who flock to US assets for their higher yield and safe-haven status, potentially diverting some of those flows into rival currencies such as the euro or the yen.
(Adds that Trump hasn’t said he’ll pursue an accord and that Miran’s paper presented possible policy options.)
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