Washington is introducing a new grand strategy, the Mar-a-Lago Accord. This initiative is focused on changing the way the United States approaches currency policy, trade leverage, and alignment in the geopolitical contest with China. The Accord strategically targets China, the eurozone, and Japan while maintaining pragmatic relationships with allies such as the UK, Canada, and Mexico. This much-forwarded initiative is a unique 21st-century variation on similar past pacts such as the Plaza Accord, with a Trumpian twist to be sure.
Our Mar-a-Lago Accord intends to change how Washington does business with their 300 million+ consumers. Most notably, it prioritizes transforming capital markets and military partnerships. It stresses a whole-of-government approach that zeros in on currency manipulation. Moreover, it intends to increase the United States’ standing in international trade currents. Analysts are keeping a close eye on how this new initiative will affect the U.S. Treasury market. They are looking at its broader implications on international relations.
The U.S. Treasury has adopted a three-strikes-you’re-out approach to spotting currency manipulators. Countries that meet at least two out of the three criteria would be placed on a watchlist. You have to balance a bilateral goods and services trade surplus with the U.S. of at least $15 billion. Furthermore, make your net external position more than 3% of GDP and implement a continual foreign currency intervention netting 2% of GDP on a 12-month rolling basis.
Against these criteria, addition of countries such as Ireland and Switzerland should come next on the monitoring list. Recent forecasts suggest that the upcoming June Treasury FX report is unlikely to categorize any nation as a manipulator at this time. There would be considerable political weight in the symbolic inclusion of Ireland. It would be an important indication of a broader shift in U.S. scrutiny beyond just its adversaries to its allies.
The Mar-a-Lago Accord can bring new or renewed efforts to address foreign exchange flows. The U.S. could adopt a ‘negative user fee’ on official Treasury holdings. Furthermore, it should increase the size and scope of the Exchange Stabilization Fund to help manage these international financial currents more effectively. Such actions would not only signal a robust approach towards currency manipulation but would reinforce the United States’ commitment to maintaining its economic strength.
Today this dollar floats much higher than its trade balance would allow, propped up by decades of inflexible demand for U.S. Treasuries. This new reality is both a boon and burden to policymakers as they work to bend the arc of global finance to their will. Switzerland especially, among these is caught between the imperative to control currency as needed and abide by diplomatic wishes under these changing tactics.
Trump’s proposed trade doctrine for a second term would be to leverage trade dynamics. It hopes to accidentally get currency clauses and other geopolitical IOUs past the queen and rooks, like a game chess. Geoeconomic rivalries The United States is mounting a strategic, geoeconomic counteroffensive against rival major economic powers, chiefly China and the eurozone. In parallel, it is fortifying its connections with like-minded partners to re-organize its economic relations on several levels.
Even as the Mar-a-Lago Accord continues to play out, its consequences will already be felt across the international trade and finance sectors. These innovative economic moves could radically change how countries compete and cooperate in the international economy. This is particularly the case when it comes to rules on currency manipulation.