US President Donald Trump’s tariff war has stirred speculation among global investors about his next move to disrupt the global economic order. Attention is now turning to the “Mar-a-Lago Accord,” a proposal by Stephen Miran, chair of Trump’s Council of Economic Advisers, to collaborate with trading partners in weakening the dollar.
The core of the plan challenges the notion that the dollar’s status as the world’s reserve currency is a burden driving up its value, making US goods more expensive and leading to trade deficits and job outsourcing. While this argument has merit, it oversimplifies the complex relationship between the exchange rate and trade imbalances.
Historical examples, such as the UK’s experience with the pound as a global reserve currency, highlight that a current account surplus hinges on factors beyond the exchange rate, including national savings and investment dynamics. While fiscal deficits impact the current account deficit, addressing them requires political will and responsible economic policies.
The strength of the US economy, characterized by dynamic business growth and automation in manufacturing, contributes to its attractiveness to investors. Miran’s plan, though intriguing, overlooks the multifaceted reasons behind America’s trade deficits and the limited effectiveness of tariffs as a solution.
In essence, the link between the dollar’s reserve-currency status and trade imbalances is intricate, and addressing underlying economic fundamentals is crucial for sustainable solutions.
