Brussels, 5 April 2025
Economists and investors are closely watching for potential shifts in U.S. financial and exchange rate policies tied to the so-called “Mar-a-Lago Accord”—a set of proposals centered on weakening the dollar to strengthen U.S. American manufacturing. In this article, we explore what the accord entails and its possible implications for the global financial system.
The “Mar-a-Lago Accord” is a conceptual framework proposed within the U.S. administration, aiming to address perceived economic imbalances by devaluing the U.S. dollar to enhance American manufacturing competitiveness and reduce trade deficits. The term draws a parallel to the 1985 Plaza Accord, where major economies coordinated to weaken the dollar.
Key Components of the Mar-a-Lago Accord
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Trade and Tariff Adjustments: The administration may employ tariffs and other trade measures to encourage foreign governments to participate in the accord and to protect domestic industries.
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Dollar Devaluation: The primary objective is to weaken the U.S. dollar, making American exports more competitively priced internationally and reducing reliance on imports.
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Debt Restructuring: The plan suggests converting foreign-held U.S. Treasury securities into ultra-long-term bonds, such as 100-year bonds, to alleviate immediate fiscal pressures and manage debt more effectively.
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Security and Economic Incentives: The U.S. could leverage security guarantees and access to American markets as bargaining tools to gain cooperation from other nations in implementing the accord’s measures.
Public and Expert Opinions
While the administration believes this strategy could revitalize U.S. manufacturing and address trade imbalances, it has faced criticism and skepticism:
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Economic Risks: Critics argue that such an accord could undermine the dollar’s status as the global reserve currency, potentially leading to higher inflation and increased borrowing costs.
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Feasibility Concerns: There is doubt about the willingness of major trading partners to participate in coordinated currency devaluation, especially given the complex dynamics of the current global economy.
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Historical Parallels: Some draw comparisons to the Plaza Accord’s unintended consequences, cautioning that similar strategies today might lead to economic instability.
As of now, the Mar-a-Lago Accord remains a theoretical proposal without formal implementation. Its potential adoption continues to be a topic of debate among policymakers and economists.
How would China respond?
China is likely to resist the proposed “Mar-a-Lago Accord,” which aims to devalue the U.S. dollar to boost American manufacturing competitiveness. Several factors contribute to this anticipated stance:
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Export Competitiveness: A weaker U.S. dollar would necessitate a stronger Chinese yuan, potentially making Chinese exports more expensive and less competitive globally. Given China’s current economic reliance on exports, especially amid domestic challenges, Beijing is unlikely to support measures that could harm its export sector.
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Historical Precedents: China views the aftermath of the 1985 Plaza Accord, which led to a significant appreciation of the Japanese yen and subsequent economic stagnation in Japan, as a cautionary tale. Chinese policymakers are wary of similar outcomes that could arise from agreeing to a currency appreciation.
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Economic Stability Concerns: A stronger yuan could exacerbate existing economic issues in China, such as deflationary pressures and low consumer demand. Additionally, it might lead to capital flight and increased market volatility, further destabilizing the Chinese economy.
In summary, China’s economic priorities and historical experiences suggest it would be reluctant to participate in an agreement like the Mar-a-Lago Accord that could undermine its export competitiveness and economic stability
Source – Insight EU assisted by ChatGPT/Perplexity/Gemini/DeepSeek