Mar-a-Lago Accord: Dollar Devaluation Debate

Context:

This analysis examines U.S. President Donald Trump’s potential policy of devaluing the U.S. dollar to address trade deficits, drawing parallels with the 1985 Plaza Accord. The piece explores the feasibility, implications, and global economic context of a speculated "Mar-a-Lago Accord," providing insights into international trade, monetary policy, and India’s economic stakes as of March 22, 2025.

Crisp Information in Points:

1. Trump’s Goal: Aims to reduce the U.S.’s $1 trillion trade deficit in 2024 by making exports cheaper and imports costlier, shifting from tariffs to dollar devaluation as a key strategy.
2. Mar-a-Lago Accord Concept: A rumored agreement, likened to the 1985 Plaza Accord, where the U.S. might negotiate with major economies to weaken the dollar, potentially formalized at Trump’s Florida resort in April 2025.
3. Plaza Accord Precedent: In 1985, the G-5 (U.S., Japan, Germany, France, UK) coordinated to devalue the dollar by 50% over two years, boosting U.S. exports but causing Japan’s asset bubble and stagnation.
4. Dollar’s Strength: By March 2025, the dollar’s real exchange rate is at a 40-year high (similar to 1985), making U.S. exports expensive and imports cheap, exacerbating trade imbalances.
5. Devaluation Mechanics: Could involve currency market interventions or policy shifts, requiring $7.5 trillion daily turnover—five times higher than 1989 levels—posing a massive challenge.
6. Global Resistance: Unlike 1985, today’s key players (e.g., China, Eurozone) may resist, as a weaker dollar hurts their export competitiveness; Trump’s tariff threats (10-60%) aim to pressure compliance.
7. Dollar’s Reserve Status: Comprises 60% of global forex reserves and 50% of transactions; devaluation risks undermining this trust, though demand keeps its value high naturally.
8. Feasibility Doubts: Experts like Tiffany Wilding (Pimco) argue the scale of intervention needed is “staggering,” and Trump’s unilateral approach alienates allies, unlike the cooperative Plaza Accord.
9. India’s Stake: A weaker dollar could lower U.S. import costs for India but raise oil prices (in dollars), impacting inflation; India’s $3.8 trillion GDP (FY25) relies on balanced trade with the U.S.
10. Risks: Devaluation might spike U.S. inflation, disrupt markets, and fail to fix structural trade issues, with lessons from Japan’s post-Plaza economic woes as a cautionary tale.

Key Terms:

• Mar-a-Lago Accord: Speculated U.S.-led deal to devalue the dollar, akin to Plaza Accord.
• Plaza Accord: 1985 G-5 agreement to weaken the dollar, reshaping global trade.
• Trade Deficit: Excess of U.S. imports over exports, $1 trillion in 2024.
• Dollar Devaluation: Policy to reduce the dollar’s value to boost export competitiveness.
• Real Exchange Rate: Inflation-adjusted value of the dollar against other currencies.
• Forex Reserves: Foreign exchange assets held by central banks, 60% in dollars.
• Currency Intervention: Government action to influence exchange rates, e.g., selling dollars.

Link To The Original Article – https://indianexpress.com/article/explained/explained-economics/explainspeaking-mar-a-lago-accord-dollar-devaluation-9899037/