A strong dollar is generally believed to be advantageous for the United States compared to a weak dollar, according to economists Steven Kamin and Mark Sobel of the American Enterprise Institute. They caution that implementing a Mar-a-Lago Accord could have negative consequences, such as destabilizing the global financial system and compromising the dollar's predominant role.
The US economy relies heavily on consumption, and lower-priced imports can enhance Americans' purchasing power. A trade deficit isn't necessarily harmful as long as the economy is robust in areas such as investment, innovation, and job creation.
When the dollar is strong, imported goods become cheaper for Americans, while US exports become pricier for other countries, resulting in an expanding goods trade deficit. In 2024, the goods trade deficit hit a record high of $1.2 trillion, significantly larger than in 2000.
The proposal put forth by Stephen Miran suggests that the US dollar has been overvalued, leading to persistent trade deficits and the outsourcing of manufacturing to countries like China. To address this issue, a devaluation of the US dollar is considered necessary.
The concept of a "Mar-a-Lago Accord" involves reshaping global capital flows by devaluing the US dollar, refinancing US debt, and potentially straining trade relations with other countries. While skepticism remains about the feasibility of such an accord, the unpredictability of President Trump keeps investors attentive to any potential developments.
Despite the decline of manufacturing jobs and the emphasis on reviving the manufacturing sector in Trump's economic strategy, experts point out that the service sector employs the majority of American workers. Additionally, the trend of declining manufacturing as a share of GDP is not unique to the US, as technology and services drive economic growth in advanced economies worldwide.
While Trump's reliance on tariffs to boost manufacturing is evident, his proposed Mar-a-Lago plan goes beyond tariffs to potentially involve devaluing the dollar and implementing other measures to influence currency markets. Such actions could have significant repercussions on interest rates, investor confidence, and the overall economy.
Various complexities and risks are associated with attempts to weaken the dollar, including potential inflation, higher borrowing costs, and impacts on investor trust in US Treasurys. Economists suggest that alternative approaches could be more effective in addressing economic challenges, such as debt management and fostering growth industries in areas affected by global trade shifts.
Overall, the prospect of implementing drastic measures like devaluing the dollar and coercing other nations into agreements raises concerns about the potential disruptions and consequences for the US and global economies.