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This essay first appeared at John Ellis’s Substack newsletter News Items. Rebecca Patterson is a senior fellow at the Council on Foreign Relations.
U.S. President Trump wants to have his economic cake and eat it too.
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He wants to keep the dollar globally dominant but weakened to support U.S. exporters. He wants tax cuts that will increase the budget deficit but lower Treasury bond yields. He wants to raise tariffs on other countries to reduce the U.S. trade deficit but strengthen America’s standing as an attractive destination for foreign investment.
Achieving these aggregate goals – aimed at increasing U.S. manufacturing jobs and making the U.S. economy more resilient – will be difficult enough. But even more complicated - and risky - are the proposals to bake this economic cake: the Mar-a-Lago Accord.
Named after Trump’s Florida estate, the Mar-a-Lago Accord is the moniker given to a complicated set of plans and concepts of plans from Trump’s advisors that would mark an inflection point for the global economic order.
Unlike the Plaza Accord of 1985 where five countries agreed at the New York Plaza Hotel to collectively act to weaken the dollar, Mar-a-Lago is unlikely to get the cross-border coordination required to succeed.
But even just attempting to follow this policy recipe would create material risks for the U.S. economy and financial markets. More immediately, these include a potential dislocation in the U.S. Treasury market that would trigger global financial contagion and weigh on economic growth. Structurally, these efforts could call into question the Federal Reserve’s independence and increase incentives for countries around the world to reduce dependence on the USD-based financial system and U.S. marketplace.
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The ideas behind the Mar-a-Lago Accord started getting broad attention through a research note published last year by Stephen Miran, now Chair of the White House’s Council of Economic Advisors. It has gotten more focus in recent weeks as the administration has quickly adopted other unorthodox policies and as the President and cabinet members have publicly highlighted that their longer-term policy goals may necessitate short-term economic and financial-market pain.
To understand the risks from Mar-a-Lago, it’s useful to consider the policy recipe, so to speak, as laid out in five main steps by Miran.
Step 1, already underway, is tariffs. Mar-a-Lago recommends previewing tariffs before implementation and then ramping up tariff levels gradually, all to give U.S. firms room to prepare and countries time to negotiate. This is what has largely happened to date. Indeed, as Trump and his team provide hints at the next tariff wave expected sometime around April 2, what the president is calling “Liberation Day,” U.S. companies are building inventories and foreign companies are offering U.S. investments, the latter in hopes of getting tariff exemptions from the White House.
Historically, tariffs have often caused the home country's currency to strengthen and the currencies of tariffed countries to weaken, as consumers in the home country buy fewer of the pricier imports. Miran suggests that the weaker foreign currency allows U.S. importers to get tariffed items more cheaply (one dollar gets you more of the weakened foreign currency). That means that even with the tariff applied, the final price paid doesn’t change much. Assuming this logic holds, which he acknowledges is uncertain, he sees tariffs as a way to bring in U.S. revenue without material inflationary risk.
Separately, Mar-a-Lago proponents expect tariff revenue will offset lower U.S. tax revenue, which will help manage the country’s fiscal challenges.
Step 2 is blending trade sticks with defense carrots. Mar-a-Lago, as described by Miran, posits that “national security and trade are joined at the hip.” He and the broader administration see the U.S. security umbrella as something foreign countries should pay for in some way. That’s where the trade war comes in. Countries that want to continue benefitting from U.S. protection could take a variety of steps to help U.S. businesses, from reducing local subsidies, agreeing not to retaliate against U.S. tariffs, joining the U.S. in trade restrictions against China, or pledging major investments in the U.S.
Step 3 is weakening the dollar while keeping it globally dominant. President Trump and Vice President JD Vance have stated their preference for the U.S. dollar to remain the global reserve currency. At the same time, they want other countries’ currencies to strengthen from what are seen as unfair levels which give these countries an export advantage over the U.S. (Never mind that a weaker dollar, as noted in Step 1, could increase inflation risks.)
Mar-a-Lago’s recipe attempts to address this “dominant-but-weaker” dilemma with multi-step, coordinated central bank intervention.
The proposal suggests that the U.S. would consider reducing tariffs if a foreign country agreed to sell its U.S. government bonds from central bank reserves in exchange for its own currency. This would weaken the dollar and strengthen the local currency. The goal would be to get several major countries to do this at once, similar to Plaza in 1985.
But selling such a large quantity of Treasury bonds could easily trigger a market crisis by sharply pushing up yields. To reduce that risk, the same central banks would also agree as they sell current holdings to swap into smaller dollar amounts of ultra-long Treasury bonds (say 50- or 100-year bonds with zero or low coupons). The hope here is that these steps together would get the U.S. both a weaker dollar and longer-term financing without losing much share of global central bank reserves.
This is where the recipe falls apart. In contrast to 1985, when countries agreed to pursue a weaker dollar and backed intervention with monetary and fiscal policies geared to achieve the same goal, today there is no broad agreement on preferred currency trends or policy.
While the U.S. wants much stronger foreign currencies, China for instance would likely prefer a gradual, modest weakening of its renminbi to help fight deflation and encourage more consumption. Japan, meanwhile, might be okay with a modestly stronger yen but is mainly focused on currency stability to help its global businesses in their longer-term planning. Europe is currently cutting interest rates to support growth; a stronger euro would work against that goal by hampering exports. If the U.S. wants global coordination this time, it won’t come easily.
Step 4 is a fix if Step 3 fails: Tax capital inflows or buy foreign currencies to weaken the dollar. Mar-a-Lago holds that if a multilateral effort can’t be secured, the U.S. has alternative, unilateral ways to reach its goals. One idea is to have the President use the International Emergency Economic Powers Act to impose a type of “user fee” on official foreign holdings of U.S. reserve assets to make them less attractive and therefore reduce dollar demand. A directionally similar idea is for the U.S. to purchase foreign currencies, potentially funded by government-held gold reserves or the Federal Reserve.
Finally, Step 5 encourages the Federal Reserve to support these government efforts and smooth over any market dislocations. Given risks of adverse market reactions to a number of these steps, a successful Mar-a-Lago Accord would require the Fed to act as supportive sous-chef. For instance, if the central banks’ shift into longer-term Treasury bonds causes panic selling of bonds by private investors, the Fed could intervene to ensure stability. It may also be required to provide short-term liquidity to central banks holding ultra-long bonds, which would likely be thinly traded and volatile.
Overall, the administration sees this recipe as a way to help deliver on Trump’s economic promises. Of course, the White House is looking at additional creative ways to bake a great American economic cake. Supporting dollar stablecoins, cryptocurrencies that act as a globally available digital dollar, could increase demand for Treasuries held in stablecoin reserves to preserve the currency “peg” and reinforce global dollar usage. This could help cap U.S. Treasury yields and reduce market risks from parts of the Mar-a-Lago Accord.
Meanwhile, selling government assets like land or buildings could generate revenue to fund foreign-exchange reserves (or other priorities). And encouraging more energy production, if successful, could contribute to lower energy prices and offset inflation pressures that the weaker dollar could create.
What about the risks? Miran acknowledges that these policies could cause near-term economic or market pain. He highlights the potential for inflation in particular, the latter already noted by the Fed at its March policy meeting and expected by many Wall Street economists if broad tariffs are pursued at a time when U.S. inflection expectations are already rising.
He also notes the risk of market volatility. Central banks unloading billions worth of Treasury holdings and dollars in short order would be a massive market event, creating contagion to broader markets that Miran seems to be significantly underappreciating.
The Plaza Accord itself provides an example of what could easily happen. About a year after its implementation, then Treasury Secretary James Baker said: “The Plaza Agreement achieved its purpose, perhaps too well. What began as an orderly adjustment of exchange rates threatened to become a free fall.” After the dollar lost about 40% against the Japanese yen and 20% against the German deutsche mark, policymakers had to reunite in September 1987 for what was called the Louvre Accord – coordinated action to stabilize the dollar and financial markets.
The Mar-a-Lago Accord creates more structural risks as well that could weigh on U.S. growth - similar to what the UK experienced after its 2016 decision to exit the European Union.
A trade war would not just put U.S. companies at risk from retaliatory tariffs but also loss of market share, as foreign firms look for more reliable partners. U.S. farms saw such a shift from the U.S.-China 2018–19 trade war – Chinese buyers switched more of their soybean purchases to Brazil and to date have not come back. In the European Union, meanwhile, recent months have seen new trade deals finalized with Latin and South American countries, excluding the U.S. The EU, in its proposed “Readiness 2030” security strategy, could strictly limit purchases of U.S. materials, a notable shift in policy from past decades.
Meanwhile, risks arise from a potential loss of trust in the Federal Reserve’s independence and reliability of U.S. institutions more generally. That could be reflected in foreign firms’ interest in investing in the U.S. (In Trump’s first term, foreign direct investment inflows slowed, even before the pandemic.) It could also emerge in a sustained, higher bond “term premium,” the extra return required over the policy interest rate to loan the U.S. government money for longer time periods. Higher yields would mean more challenging borrowing costs for firms and households which could weigh on broader economic growth. Finally, this environment would likely increase support around dollar alternatives, including the BRICS group of emerging economies and led by Brazil, Russia, India, China and South Africa. It’s no coincidence that China this month increased the number of local sectors available to foreign investment, offering tax breaks and other incentives. It hopes to gain “market share” not just in goods but also in global capital flows.
Most Americans support the Trump administration’s goals of a stronger manufacturing sector and more resilient economy. But if they understand the risks involved, few seem likely to support the Mar-a-Lago Accord as the best recipe for reaching those goals.