The term “Mar-A-Lago” had come up multiple times in articles I had been browsing over the past week – This article provides a summary of the Accord, to keep you informed about contemporary key economic events.
The Mar-A-Lago accord (named after President Trump’s Florida home) is a bid to resurrect American domestic manufacturing and make American exports more competitive to reduce America’s trade deficit
The Accord utilises and augments the below items to achieve its goal.
Trade policies
Trade policies are encompassed in the accord for the specific use of reducing the American Trade deficit
Tariffs intend to weaken foreign export-driven economies which benefit from American consumption. Tariffs are already in place and discourage reliance on American demand for imported goods by making it expensive to export goods to America. These tariffs will help manufacturing and industry by making domestic goods more competitive than imports because they will be cheaper.
Security Policy
Trump is also using the promise of US defence as a bargaining tool for compliance to his trade policies.
By exploiting reliance on US defence, Trump has pinned foreign countries into alignment with trade balance adjustments and currency devaluation. This strategy is particularly effective due the US’ role in NATO: Where they have expressed discontent in the other countries having a vastly lower defence budget, Trump seeks to pressure his allies into increasing their security budget by threatening to withdraw and reduce military support in NATO. This policy will levy the financial burden of defence and foster stronger collective security forces.
Currency Policy
Much like the 1985 Plaza Accord, one of Trumps central goals within this treaty was the devaluation of US currency.
This makes exports more competitive and reduces imports, aiding American manufacturing and boosting productivity. One of three ways the American administration has done so is by making local foreign currencies stronger than the pound. Another means to weaken the US dollar is by decreasing interest rates; previously Trump has been critical of the FED for having high interest rates, which to some extent hamper the evaluation of currency. The final method to devaluation is making the Dollar an unfavourable currency to hold; by extending the “maturity of bonds”1 for US held debt, foreign investors are less likely to store the American dollar – reducing its demand and therefore its value.
Trump’s Mar-A-Lago treaty draws on strategy from decades prior while also using Americas long-standing influence to leverage support for his treaties. There is definitely more to unpack with this accord – A follow-up article will be published soon covering more of the technicalities of the accord, this article serves as a briefing for following posts which may require some prior knowledge.
- The date by which a bond’s principal value must be paid back to the investor, long-term bonds (30+ years) are less desirable than short term bonds. ↩︎