How Trump’s economic team hopes to reset the international financial system | DW News

Mara Lago Accord: Reorganizing the International Financial System

Key Concepts:

• Mara Lago Accord: A proposed plan by Donald Trump's economic team to reorganize the international financial system, aiming to devalue the US dollar and tilt the global economy in favor of the United States.
• Dollar Devaluation: Intentionally lowering the value of the US dollar to make US exports cheaper and imports more expensive.
• Trade Deficits: The amount by which a country's imports exceed its exports.
• Currency Manipulation: Actions taken by a country to artificially lower the value of its currency.
• Plaza Accord: A 1985 agreement where the US, West Germany, France, Japan, and the UK intentionally devalued the US dollar.
• Geoeconomics: The intersection of geopolitics and economics, particularly concerning the use of economic power to achieve political objectives.

The Core Idea: Devaluing the Dollar and Restructuring Debt

The central idea behind the Mara Lago Accord is to weaken the US dollar. Trump's economic team believes the dollar is too strong, leading to cheaper imports and more expensive exports, which hurts US manufacturing and increases dependence on foreign production. The plan also addresses the US national debt (over $30 trillion) and the interest payments on that debt, which are substantial.

The proposed solution involves convincing other countries to devalue the dollar and exchange their US debt holdings for 100-year bonds with lower interest rates. This would reduce the US debt burden.

The "Friends and Enemies" Approach

To incentivize cooperation, the plan suggests categorizing countries into three groups:

• Green (Friendly): These nations would receive military protection and tariff relief.
• Red (Unfriendly): These nations would face high tariffs and no military aid.
• Yellow (Neutral): These nations would be in the middle ground.

This approach explicitly links America's military might to its financial power, essentially making other countries pay for US protection.

Risks and Challenges

• Alternative Alliances: Countries might turn to China or other nations for trade deals and military stability if they find the cost of aligning with the US too high.
• China's Role: China, a major holder of US debt and a significant player in the global economy, may not be willing to cooperate. The Plaza Accord is viewed with caution in China, as some believe the appreciation of the Japanese yen led to Japan's economic stagnation.
• Domestic Instability: Intentional devaluation of the US dollar could lead to domestic economic instability and destabilize the global trade system.
• Conflicting Objectives: Trump has previously accused China of currency manipulation and has stated he doesn't want to give up the dominance of the dollar within reserves, creating conflicting objectives.

Historical Context: The Plaza Accord

The Mara Lago Accord is a play on the Plaza Accord of 1985, where several major economies agreed to intentionally devalue the US dollar. However, the incentives for countries to participate are different now. In 1985, the US provided security guarantees to many of the participating countries. Today, countries like China, Mexico, and Vietnam, which hold large trade deficits with the US, may not have the same incentives.

Expert Opinion: Jesse Yin (Atlantic Council)

Jesse Yin, Assistant Director at the Atlantic Council's Geoeconomic Center, suggests viewing Trump's military priorities and tariffs through the lens of the Mara Lago Accord. She argues that it's a debate in Washington D.C. whether these tactics are feasible for weakening the US dollar. She emphasizes that China's potential non-cooperation would significantly undermine the plan. She also notes that G7 countries have agreements since the mid-2010s to avoid such currency agreements.

Potential Impact

If implemented, the Mara Lago Accord could have significant ripple effects:

• Destabilization: It could destabilize countries whose currencies are tied to the dollar.
• Unilateral Action: If the US pursues this unilaterally through tariffs, other countries would have to accept the dollar's movements and their economic consequences.
• Job Creation: It's uncertain whether it would bring more jobs to the US, as global trading systems and supply chains are highly interconnected.

Conclusion

The Mara Lago Accord represents a bold and potentially destabilizing plan to reorganize the international financial system. It aims to devalue the US dollar, reduce the national debt burden, and tilt the global economy in favor of the United States. However, the plan faces significant challenges, including potential resistance from China, the risk of domestic instability, and the possibility of countries seeking alternative alliances. The success of the plan hinges on convincing other nations to act against their perceived financial interests, a task that may prove difficult given the current geopolitical landscape.