Much public attention lately has focused on the idea of a Mar-a-Lago Accord, a grand bargain patterned on the 1985 Plaza Accord, in which the US would lower tariffs on key economies in exchange for action to weaken the US dollar.
The idea is far-fetched and implausible.
What was the Plaza Accord?
The dollar soared in the early 1980s on the back of Federal Reserve Chair Paul Volcker’s monetary tightening to wring inflation out of the economy and President Ronald Reagan’s expansive fiscal deficits on the heels of tax cuts and increased defence spending. US interest rates and the dollar soared.
The dollar came off its highs in early 1985 and the Plaza Accord later that year gave it an extra push. That push involved G5 country commitments to take fundamental actions in support of desired currency movements, including the US getting its fiscal house in order and others boosting domestic demand. It involved agreements to intervene in currency markets.
The Plaza Accord was an effort by then Treasury Secretary James Baker to defuse US protectionist pressure. Unsurprisingly, the US didn’t then get its fiscal house in order. In subsequent years, Japan and Germany took a dim view of Plaza and its aftermath.
Fast forward to 2025. President-elect Donald Trump’s economic plans entail imposing large tariff hikes across the board and on China, and large tax cuts that will massively boost US debt and deficits. These plans, by reducing US national saving, necessitating more capital inflow and rendering foreigners’ exports less competitive, could be expected to widen US trade deficits and put upward pressure on the dollar. Trade actions won’t fix US saving-investment imbalances, though the composition of bilateral deficits may be altered.
With fiscal consolidation, the best route to a softer dollar, ruled out, enter ‘escalate to de-escalate’ tariff hikes and a Mar-a-Lago Accord.
It is not likely to work
Some suggest such an accord could create a path towards US spending cuts. US budget policy is heavily driven by Congress. Neither Democrats nor Republicans have shown appetite to significantly curtail spending. It is implausible to think that any president or Treasury secretary can ex ante deliver credible fiscal policy commitments to other major economies.
Since Plaza, central bank independence in the US, euro area and Japan has become firmly entrenched. Central banks target inflation and have committed in the G7 and G20 to refrain from competitive devaluations and not to target exchange rates. Economic policy is orientated towards domestic objectives.
A Mar-a-Lago Accord also would be inconsistent with Europe’s cyclical situation. A devalued dollar would be tantamount to a stronger euro.  That could be achieved by higher ECB interest rates and/or fiscal expansion in key European nations. But the ECB is now cutting rates given weak European economies and key countries such as Italy and France lack fiscal space.
G3 foreign exchange market jawboning and interventions, absent changes in fundamentals, are largely ineffective. Of course, exchange rates are driven by the entire balance of payments, often reflecting interest rate differentials, and thus it is almost impossible to foresee how capital flows and exchange rates might respond to any accord.
Would China agree to an accord?
Trump’s ‘devaluation’ rhetoric is heavily aimed at China. China was not a party to the Plaza Accord but it would need to be central to a Mar-a-Lago Accord.
In 2019, the renminbi weakened when Trump announced tariffs, falling past the 7.0 renminbi-dollar level and so infuriating the president he instructed Treasury to declare China a currency manipulator.
A weakening renminbi poses conundrums for Chinese authorities. The renminbi is already falling against the dollar, towards 7.3 currently, reflecting in large measure general dollar strength and anticipation of tariffs (Figure 1). But sharp depreciation against the dollar runs the risk of spawning a massive one-way capital outflow as happened in 2015-16, an experience China doesn’t want to see replicated. The authorities might have some temptation, however, to let the renminbi fall in a restrained manner to offset the impact of tariffs and send Trump a message.
Figure 1. Renminbi is falling against the dollar
Chinese renminbi to dollar spot exchange rate
Source: Board of Governors of the Federal Reserve System
The 2020 Phase 1 US-China trade deal included an exchange rate chapter in which China committed to doing what it was already doing. But the broader Phase 1 agreement – even if not fulfilled – was declared a victory and China was removed as a ‘manipulator’.
It’s hard to imagine President Xi Jinping would agree to an accord with Trump if he were to be perceived as caving to the US. Chinese exports to the US have declined significantly since 2022, perhaps in part reflecting transshipments and reshoring. Further, even were China to strengthen the renminbi versus the dollar, it might only go back to where it was before. The real renminbi remains extremely competitive (Figure 2).
Figure 2. Real renminbi remains competitive
Real broad effective exchange rate for China
Source: Bank for International Settlements
Mar-a-Lago Accord proponents may have woefully exaggerated perceptions about US leverage over China. In short, whether among the G3 or with China, a realistic foundation for a Mar-a-Lago Accord simply does not appear to be in place.
Mark Sobel is US Chair of OMFIF.
