A strong US dollar hampers Trump's manufacturing revival by making exports expensive and widening the US traxde deficit. A new plan now seeks a coordinated effort among major economies to devalue the currency.
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00:00There are two problems haunting the US government, and at their core sits the global role of
00:05the dollar.
00:06This is a story of revamping manufacturing and of reviving old ideas with a radical new
00:10twist called the Mar-a-Lago Accord.
00:13The proposed solutions offer a glimpse at US policy to come, but could end up breaking
00:17the global dominance of the dollar.
00:22Similar to industrial stories today, this story starts with cars.
00:27American cars in the 1980s.
00:30No secret, a lot of people believe American cars aren't filled as well as Japanese or
00:34European cars.
00:36But it wasn't just the build, it was also price.
00:40The United States was buying a lot more Japanese cars and German cars, and Japan and Germany
00:47were importing a lot less from the United States.
00:50And the Reagan administration was concerned about this.
00:53The cars produced in the United States were more expensive for foreign consumers driving
00:57down sales.
00:58US manufacturers were enjoying cheap steel imports, but selling their products overseas
01:03was difficult.
01:04One reason, the Americans argued, the dollar was overvalued.
01:08Pressure intensified for US manufacturing to be more competitive, so that America could
01:13no longer be pushed around.
01:15So in September 1985, finance ministers of West Germany, France, the US, Britain and Japan
01:21met to strike a deal to change the course of manufacturing and the dollar.
01:25It was an agreement negotiated at the Plaza Hotel in New York City, which coincidentally Donald
01:31Trump bought about three years later, didn't own it at the time.
01:35The goal of the Plaza Accord was to devalue the dollar itself.
01:39Something that plays out on the stage of foreign exchange markets.
01:45They are pretty weird marketplaces, because they trade money for money, which means the
01:50price tag for one currency is always made out in another currency.
01:55And there are a couple of reasons why that price tag could be higher than it should be.
02:00If a lot of people want to buy products or services from the United States and need to
02:03buy dollars for it, the dollar price rises.
02:06But that's not all.
02:07Oil around the world is traded in dollars.
02:11Financial markets globally use it as a basis for many contracts.
02:15And in many places, people and businesses trust the dollar more than their own currency.
02:21What that does, it creates a lot of extra demand for dollars, which pushes up the price for
02:27dollars.
02:28What happened after Plaza was central banks themselves became market actors, right?
02:35They possess foreign currency reserves.
02:38And so you add Germany and Japan essentially selling dollars in foreign exchange markets.
02:46And then the United States doing the opposite, buying German marks in Japanese yen.
02:51With a lot of sales of dollars at the same time, the market followed and pushed the dollar
02:55price lower.
02:57But the Plaza intervention wasn't a permanent fix.
02:59Especially since 2014, the dollar's value kept creeping up.
03:04Which leads to today, where trade imbalances are top of the news again.
03:08Donald Trump has spoken out against the dollar's value multiple times, citing especially the
03:12price difference between the dollar and the Japanese yen and Chinese yuan as disproportionate.
03:17The roll of the dollar is massive, accounting for example for half of global trade invoicing.
03:22And that's where the Mar-a-Lago Accord comes in.
03:26Referencing the Plaza Accord, it's named after Donald Trump's golf resort.
03:31It's an idea in this paper published by Stephen Mirren in November 2024.
03:36He's now Donald Trump's top economic advisor.
03:38As the Trump administration has been implementing some of its economic policies here in the first
03:45couple months of its term, some folks have been sort of pointing back to that paper and
03:50trying to really perhaps explain the administration's policies in the light of what was argued in
03:57this paper.
03:58In its first part, it suggests that the U.S. pressure countries into helping it devalue
04:03the dollar with tariffs and that it threatened to withdraw military support.
04:08If tariffs are a stick, Trump would budge on his tariff regime if other countries cooperate
04:13in currency.
04:15Threatening to pull the U.S. defense umbrella to get cooperation on economic policy would
04:19be a major shift in foreign policy.
04:22Senior members of the U.S. administration have already questioned whether the United States
04:26should provide military support around the globe for free.
04:33The dollar's value has dropped since the beginning of Donald Trump's presidency as his
04:37destruction of the international trading system ushered in uncertainty.
04:42It's mostly seen as a sign that investors are losing faith in the U.S., a first sign that
04:47Trump could be breaking the dollar's grip on the world.
04:55But there is a second concern in Stephen Mirren's playbook, government debt.
04:59To pay for expenditures like the military, education and health, governments all around
05:04the world take on debt.
05:07For example, the U.S. issues bonds, debt contracts that are sold to people, banks and other investors.
05:14These creditors lend money to the government for, let's say, 10 years.
05:19They receive some interest payments and technically get their money back after the agreed time.
05:24The U.S. government borrows about $2 trillion every year like this.
05:27But the interest payments the U.S. government makes out to its creditors have jumped since
05:322021.
05:33The U.S. central bank had raised interest rates to rein in inflation, pushing up borrowing
05:37costs for the government as well.
05:39The second leg of the Mar-a-Lago accord is essentially this goal to reduce U.S. debt
05:46service costs.
05:47The idea would be to force other countries to swap the U.S. bonds they hold already for
05:51new bonds that last for 100 years and pay no or lower interest.
05:56And that's a slippery slope because it casts doubt on the creditworthiness of the U.S.
06:01government.
06:02This is such an unprecedented idea.
06:04This is, in my opinion, the most kind of fantastical part of this.
06:07I have a hard time imagining this actually happening.
06:10But frankly, I have a hard time imagining them even asking for this because I think it'd
06:14be kind of nuts.
06:18So far, these plans are not official policy.
06:22But they could lead to investors further losing trust in the dollar because it threatens the
06:28institutions that uphold the currency's role now.
06:34Some investors are already moving away from the dollar.
06:38In recent years, foreign countries intensified their purchases of gold.
06:42But with massive savings sloshing around the world, what else can serve as a storage of
06:48value?
06:49I do think this potential for Europe to find the political will to potentially unite capital
06:58markets and to start to borrow in ways that would, again, create larger asset pools could
07:08really, you know, not that they could rival the dollar, right, but start to present a realistic
07:16alternative for diversification.
07:19And that's the problem.
07:27Trump's policies could in fact drive down the value of the dollar, not because of a negotiated
07:31deal, but because people don't want to do business with the US anymore.
07:36In that world, the US would have to bring out the big guns to get ahead on debt.
07:40But most people and countries don't want to be told which currency to use at gunpoint.
07:47And that's the risk of this plan to change global finance, that it's so radical it breaks
07:51the dollar's dominance in its wake.
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