Mar-a-Lago Accord - Using US Tariffs to Force a Weak US Dollar?

Ever wondered how tariffs & a weaker US dollar could reshape global trade? Stephen Miran’s guide explores the ‘Mar-a-Lago Accord’. We dive into the plan to tackle trade imbalances and the potential economic consequences, like inflation and market volatility. Understand the future of US economic policy and international relations – watch now!

Frequently Asked Questions (FAQ)

Central Argument: The guide argues the US dollar is overvalued due to its reserve currency status, hurting US manufacturing. A strong dollar makes imports cheap and exports uncompetitive, hindering reshoring. It suggests a significantly weaker dollar (e.g., 20%) is needed to revive US industry.
Mar-a-Lago Accord & Tariffs: It’s a proposed “Plaza Accord 2.0” to weaken the dollar via coordinated action with trading partners (though harder now). Tariffs are the key leverage to force participation, potentially alongside threats like removing security guarantees or taxing foreign-held Treasuries. Cooperating countries would sell USD reserves to lower the dollar’s value.
Risks & Mitigation: Main risks are inflation (from tariffs) and higher US interest rates (from foreign selling of Treasuries). Mitigation includes gradual tariffs, energy deregulation (for inflation), and pushing foreign central banks to hold long-term US bonds instead of short-term bills, possibly aided by Fed liquidity facilities (for rates).
Lessons from 2018-19 Trade War: The Chinese Yuan weakened somewhat against US tariffs (“currency offset”), partially reducing the inflationary impact on US consumers. However, complex factors make firm conclusions difficult. The key lesson is that currency shifts heavily influence tariff impacts.
Triffin Dilemma: This is the conflict where the reserve currency country (US) must run deficits to supply reserves globally, which can lead to an overvalued currency harming its own exports. The proposed policies aim to lessen this burden and dollar overvaluation while keeping the dollar dominant.
Financial Market Consequences: Expect potential market volatility from tariffs and currency shifts. Currency depreciation offsetting tariffs might increase financial volatility (e.g., capital flight risk if Renminbi drops). Large sales of US Treasuries could raise US interest rates. Removing security umbrellas could increase risk in those nations. Policy sequencing matters for investors.
Unilateral Currency Tools (Besides Tariffs): The guide discusses imposing “user fees” (withholding interest) on foreign official Treasury holders to make holding dollars less attractive. Direct intervention (US selling dollars/buying foreign currency) via Treasury (ESF) or the Fed is another option, though with limitations (ESF size, Fed inflation risk).
Burden Sharing: This means making US trading partners share more of the economic costs associated with the US providing the reserve currency and security umbrella. Policies like tariffs and the Mar-a-Lago Accord aim to force this, possibly through dollar depreciation, shifting debt holdings, reciprocal tariffs, or increased security contributions.

Frequently Asked Questions (FAQ - long)

What is the central argument of the “User’s Guide” regarding the US dollar and the US economy? The “User’s Guide” posits that the overvaluation of the US dollar, largely due to its status as the world’s reserve currency, significantly disadvantages the US manufacturing and production sectors. A strong dollar makes imports cheaper for US consumers and US exports less competitive globally, hindering the reshoring of manufacturing jobs. The paper suggests that a substantial depreciation of the dollar (around 20%) is necessary to achieve goals like revitalising US industry.
What is the “Mar-a-Lago Accord” and how do tariffs play a role in achieving it? The “Mar-a-Lago Accord” is envisioned as a “Plaza Accord 2.0,” aiming for a significant depreciation of the US dollar through coordinated action with major trading partners. However, unlike the 1985 Plaza Accord, securing the cooperation of countries like China, Japan, and Germany today is expected to be more challenging. Tariffs are proposed as a key negotiation tool to compel these countries to participate in the Accord. By imposing tariffs on non-participating nations’ exports to the US, removing security guarantees, or taxing interest payments on US Treasuries held by their central banks, the US aims to pressure them into agreeing to depreciate the dollar by selling their excess USD reserves and buying their own currencies.
What are the potential negative economic impacts of the proposed strategies, and how might they be mitigated? The two main risks identified are inflation from tariffs and rising US interest rates due to central banks selling US Treasuries. To mitigate inflation, the paper suggests a gradual implementation of tariffs, allowing currency depreciation in tariffed countries to potentially offset price increases for US consumers, and pursuing domestic structural reforms like energy deregulation. To address rising interest rates, the proposal involves encouraging (or compelling) foreign central banks to shift their holdings from short-term T-Bills to very long-dated T-Bonds. This “buying duration” would reduce upward pressure on interest rates even if T-Bills are sold. A further mitigation strategy involves a Fed swap-line facility (similar to the BTFP) for foreign central banks holding these long-dated bonds, providing liquidity and reducing the risk associated with their illiquidity and interest rate sensitivity.
How did currency adjustments interact with tariffs during the 2018-2019 US-China trade war, and what lessons can be drawn? During the 2018-2019 trade war, currency offset was observed, meaning that the Chinese Yuan depreciated somewhat as the US imposed tariffs. This offset partially mitigated the inflationary impact of tariffs on US consumers. However, the analysis notes that several factors complicate drawing firm conclusions, including broader dollar appreciation and the fact that many imports are invoiced in US dollars. Additionally, Chinese exporters engaged in re-exporting through third countries to evade tariffs, skewing microdata analysis. The key takeaway is that currency movements can significantly influence the ultimate impact of tariffs on prices and trade flows.
What is the “Triffin dilemma” and how does it relate to the current global economic system and the proposed policy shifts? The “Triffin dilemma” describes the conflict faced by a country whose currency serves as the global reserve currency. To supply the world with reserve assets, the reserve country must run persistent current account deficits. Over time, these deficits can lead to an unsustainable accumulation of debt, potentially undermining confidence in the reserve currency and its status. The “User’s Guide” argues that the US, as the issuer of the dominant reserve currency, faces the consequences of a “Triffin world,” including an overvalued dollar that harms its export sector. The proposed policy shifts aim to address this imbalance by reducing the demand for dollar reserves and depreciating the currency, while preserving the dollar’s status and improving burden-sharing with trading partners.
What are the potential financial market consequences of the proposed tariff and currency policies? The paper anticipates potential financial market volatility arising from both tariff implementation and currency adjustments. While currency offset can reduce consumer price volatility, it might increase financial market volatility, particularly if large currency devaluations occur. For example, a significant depreciation of the Renminbi could trigger capital flight concerns in China. Moreover, if foreign central banks sell substantial amounts of US Treasuries as part of a Mar-a-Lago Accord, this could put upward pressure on US interest rates. The withdrawal of the US security umbrella from non-participating nations could also increase risk premia in those countries’ asset markets. The sequencing of policies, with tariffs potentially preceding currency adjustments, is also highlighted as important for investors to consider.
What unilateral currency policy tools, besides tariffs, does the “User’s Guide” discuss for influencing the value of the US dollar? The paper explores several unilateral currency policy tools. One is imposing a “user fee” on foreign official holders of US Treasury securities by withholding a portion of interest payments, aiming to make reserve accumulation less attractive and thus weaken the dollar. Another is direct intervention in foreign exchange markets by the US Treasury (via the Exchange Stabilization Fund) or the Federal Reserve to buy foreign currencies and sell dollars. However, the paper notes the limitations of the ESF’s size and the potential inflationary effects and need for sterilisation if the Fed undertakes such interventions.
How does the concept of “burden sharing” relate to the proposed restructuring of the global trading system? The concept of “burden sharing” is central to the “User’s Guide’s” proposals. The US, by providing the global reserve currency and a security umbrella, is seen as bearing a disproportionate economic cost through an overvalued dollar and the financial burden of security commitments. The proposed policies, including tariffs and the Mar-a-Lago Accord, aim to compel trading partners to share these burdens more equitably. This could involve countries accepting a depreciation of the dollar, terming out their holdings of US debt into longer-dated securities, applying reciprocal tariffs, contributing more to collective security arrangements, and refraining from practices like currency manipulation and intellectual property theft. The overarching goal is to rebalance the benefits and costs associated with the current international economic and security architecture.

What is the problem?

Drawing FAQ:

What is the central argument of the “User’s Guide” regarding the US dollar and the US economy? The “User’s Guide” posits that the overvaluation of the US dollar, largely due to its status as the world’s reserve currency, significantly disadvantages the US manufacturing and production sectors. A strong dollar makes imports cheaper for US consumers and US exports less competitive globally, hindering the reshoring of manufacturing jobs. The paper suggests that a substantial depreciation of the dollar (around 20%) is necessary to achieve goals like revitalising US industry.
What is the “Mar-a-Lago Accord” and how do tariffs play a role in achieving it? The “Mar-a-Lago Accord” is envisioned as a “Plaza Accord 2.0,” aiming for a significant depreciation of the US dollar through coordinated action with major trading partners. However, unlike the 1985 Plaza Accord, securing the cooperation of countries like China, Japan, and Germany today is expected to be more challenging. Tariffs are proposed as a key negotiation tool to compel these countries to participate in the Accord. By imposing tariffs on non-participating nations’ exports to the US, removing security guarantees, or taxing interest payments on US Treasuries held by their central banks, the US aims to pressure them into agreeing to depreciate the dollar by selling their excess USD reserves and buying their own currencies.
What are the potential negative economic impacts of the proposed strategies, and how might they be mitigated? The two main risks identified are inflation from tariffs and rising US interest rates due to central banks selling US Treasuries. To mitigate inflation, the paper suggests a gradual implementation of tariffs, allowing currency depreciation in tariffed countries to potentially offset price increases for US consumers, and pursuing domestic structural reforms like energy deregulation. To address rising interest rates, the proposal involves encouraging (or compelling) foreign central banks to shift their holdings from short-term T-Bills to very long-dated T-Bonds. This “buying duration” would reduce upward pressure on interest rates even if T-Bills are sold. A further mitigation strategy involves a Fed swap-line facility (similar to the BTFP) for foreign central banks holding these long-dated bonds, providing liquidity and reducing the risk associated with their illiquidity and interest rate sensitivity.
How did currency adjustments interact with tariffs during the 2018-2019 US-China trade war, and what lessons can be drawn? During the 2018-2019 trade war, currency offset was observed, meaning that the Chinese Yuan depreciated somewhat as the US imposed tariffs. This offset partially mitigated the inflationary impact of tariffs on US consumers. However, the analysis notes that several factors complicate drawing firm conclusions, including broader dollar appreciation and the fact that many imports are invoiced in US dollars. Additionally, Chinese exporters engaged in re-exporting through third countries to evade tariffs, skewing microdata analysis. The key takeaway is that currency movements can significantly influence the ultimate impact of tariffs on prices and trade flows.
What is the “Triffin dilemma” and how does it relate to the current global economic system and the proposed policy shifts? The “Triffin dilemma” describes the conflict faced by a country whose currency serves as the global reserve currency. To supply the world with reserve assets, the reserve country must run persistent current account deficits. Over time, these deficits can lead to an unsustainable accumulation of debt, potentially undermining confidence in the reserve currency and its status. The “User’s Guide” argues that the US, as the issuer of the dominant reserve currency, faces the consequences of a “Triffin world,” including an overvalued dollar that harms its export sector. The proposed policy shifts aim to address this imbalance by reducing the demand for dollar reserves and depreciating the currency, while preserving the dollar’s status and improving burden-sharing with trading partners.
What are the potential financial market consequences of the proposed tariff and currency policies? The paper anticipates potential financial market volatility arising from both tariff implementation and currency adjustments. While currency offset can reduce consumer price volatility, it might increase financial market volatility, particularly if large currency devaluations occur. For example, a significant depreciation of the Renminbi could trigger capital flight concerns in China. Moreover, if foreign central banks sell substantial amounts of US Treasuries as part of a Mar-a-Lago Accord, this could put upward pressure on US interest rates. The withdrawal of the US security umbrella from non-participating nations could also increase risk premia in those countries’ asset markets. The sequencing of policies, with tariffs potentially preceding currency adjustments, is also highlighted as important for investors to consider.
What unilateral currency policy tools, besides tariffs, does the “User’s Guide” discuss for influencing the value of the US dollar? The paper explores several unilateral currency policy tools. One is imposing a “user fee” on foreign official holders of US Treasury securities by withholding a portion of interest payments, aiming to make reserve accumulation less attractive and thus weaken the dollar. Another is direct intervention in foreign exchange markets by the US Treasury (via the Exchange Stabilization Fund) or the Federal Reserve to buy foreign currencies and sell dollars. However, the paper notes the limitations of the ESF’s size and the potential inflationary effects and need for sterilisation if the Fed undertakes such interventions.
How does the concept of “burden sharing” relate to the proposed restructuring of the global trading system? The concept of “burden sharing” is central to the “User’s Guide’s” proposals. The US, by providing the global reserve currency and a security umbrella, is seen as bearing a disproportionate economic cost through an overvalued dollar and the financial burden of security commitments. The proposed policies, including tariffs and the Mar-a-Lago Accord, aim to compel trading partners to share these burdens more equitably. This could involve countries accepting a depreciation of the dollar, terming out their holdings of US debt into longer-dated securities, applying reciprocal tariffs, contributing more to collective security arrangements, and refraining from practices like currency manipulation and intellectual property theft. The overarching goal is to rebalance the benefits and costs associated with the current international economic and security architecture.on the summary of Stephen Miran’s “A User’s Guide to Restructuring the Global Trading System”, the central problem identified is the persistent overvaluation of the US dollar.

This overvaluation is seen as the root of economic imbalances and the cause of significant issues, primarily for American industry. The “User’s Guide” argues that an overly strong USD makes it cheaper for US consumers to buy imported products than domestically produced ones. This also makes US exports less competitive in global markets.

The consequences of this dollar overvaluation are outlined as follows:

Decline in US Manufacturing Jobs: The number of manufacturing jobs in the US plunged by about five million in the decade after China joined the WTO and essentially never recovered. While the “User’s Guide” white paper does not specifically discuss this point, the summary highlights it as context for the policy objectives. The overvalued dollar handicaps American manufacturing, leading to factory closures and job losses.
Trade Imbalances: Persistent dollar overvaluation prevents the balancing of international trade, keeping imports stubbornly cheap despite widening trade deficits.
Economic Discontent: The deep unhappiness with the prevailing economic order is rooted in this overvaluation and asymmetric trade conditions. This can lead to local economic decline, unemployment, and social problems in affected communities.
Burden of Reserve Currency Status: The dollar’s overvaluation stems from its role as the world’s reserve currency. The demand for US dollar-denominated “reserve assets” (like T-Bills and T-Bonds), coupled with the dollar’s “safe haven” status, reinforces its overvaluation by sustaining global demand for U.S. assets. As global GDP grows, it becomes increasingly burdensome for the United States to finance the provision of reserve assets, with the manufacturing and tradeable sectors bearing the brunt of the costs.

In essence, the “User’s Guide” posits that the overvalued dollar creates an uneven playing field for American industry, hindering its competitiveness and leading to a decline in manufacturing, which has broader negative economic and potentially national security implications. The goal of the policies discussed in the “User’s Guide”, such as the use of tariffs as leverage for a “Mar-a-Lago Accord” to devalue the dollar, is to address this fundamental problem.

What is the solution?

Drawing on Stephen Miran’s “A User’s Guide to Restructuring the Global Trading System”, the primary proposed solution to the problem of persistent US dollar overvaluation involves a two-pronged approach centred around tariffs as a negotiation tool to achieve a weaker dollar, potentially through a “Mar-a-Lago Accord”. The ultimate aim of this strategy is to re-shore manufacturing jobs to the United States by making domestic production more competitive.

Here’s a more detailed breakdown of the proposed solutions, drawing from the sources:

Using Tariffs as Negotiation Leverage for a “Mar-a-Lago Accord”: The “User’s Guide” essentially proposes that the US should use tariffs to compel its trading partners to agree to a coordinated depreciation of the US dollar, potentially through an agreement dubbed the “Mar-a-Lago Accord”. This accord is characterised as a “Plaza Accord 2.0”, referencing the 1985 agreement that led to a significant weakening of the US dollar. The author envisions using tariffs to pressure countries like China, Japan, and Germany to participate.
- Punitive Measures to Compel Cooperation: The “User’s Guide” outlines potential punitive measures the US could employ to encourage participation in the “Mar-a-Lago Accord”:
  - Tariffs on exports to the US for non-participating countries.
  - Removing the US security umbrella for non-participating countries (e.g., Europe).
  - Taxing the interest payments on US Treasury Securities held by non-participating central banks (e.g., China).
- Mechanism of the “Mar-a-Lago Accord”: Participation would likely involve the central banks of US trading partners selling their “excess” US dollar foreign exchange reserves (reserves beyond 3-4 months’ worth of imports) and buying their own currencies on the open market. This action would increase demand for their currencies and decrease demand for the dollar, thus weakening the dollar’s value.
Unilateral Currency Policy Tools: The “User’s Guide” also explores unilateral measures the US government could take to influence the dollar’s value, even without the cooperation of other nations. These include:
- Using the International Emergency Economic Powers Act (IEEPA): This act grants the President broad powers over international transactions in response to threats to national security, foreign policy, or the US economy. The “User’s Guide” suggests IEEPA could be used to disincentivise the accumulation of foreign exchange reserves, a key driver of dollar overvaluation. One proposed method is to impose a “user fee” on foreign official holders of US Treasury securities, such as withholding a portion of interest payments. This is framed as recouping some of the burden that reserve holders impose on the American export sector. The author stresses a gradual and differentiated implementation of such fees, potentially targeting geopolitical adversaries more severely than allies.
- Accumulating Foreign Exchange Reserves: The US could mimic the actions of some trading partners by accumulating foreign currency reserves, selling dollars and buying other currencies to increase their value. The Treasury’s Exchange Stabilization Fund (ESF) or the Federal Reserve’s System Open Market Account (SOMA) could be used for this purpose, although the “User’s Guide” notes potential limitations and risks associated with each approach, including the limited size of the ESF and the inflationary potential of the Fed printing money to buy foreign assets.
Tariffs as a Tool for Industrial Investment: Beyond currency adjustments, tariffs could be used to encourage foreign companies to set up factories in the US to avoid tariffs, thereby creating domestic jobs.
Mitigating Negative Economic Impacts: The “User’s Guide” also addresses potential negative consequences of these strategies, such as inflation from tariffs and rising interest rates from central banks selling US Treasuries. Proposed mitigation strategies include:
- Gradual Implementation of Tariffs: To avoid inflation spikes.
- Deregulation and Energy Policy: To offset potential inflationary pressures from a weaker dollar.
- Encouraging a Shift to Long-Dated Treasury Bonds: To prevent spikes in US interest rates if central banks sell their US Treasury holdings as part of a currency accord. This would involve compelling global central banks to switch from short-term T-Bills to very long-dated T-Bonds. The author acknowledges the risk of illiquidity and mark-to-market losses for central banks holding long-dated bonds and suggests Federal Reserve swap lines as a potential solution, similar to the Bank Term Funding Program (BTFP).

The “User’s Guide” emphasises that the implementation of these solutions would require careful planning, precise execution, and attention to mitigating potential adverse consequences. The author also suggests that tariffs are likely to be used as the primary tool initially, to gain negotiating leverage before pursuing currency-focused strategies.

In short

Okay, here are shortened and more easily readable versions of the “Problem” and “Solution” sections:

What’s the Problem?

The main issue, according to Stephen Miran’s guide, is that the US dollar is too strong (overvalued).

Think of it like this:

A strong dollar makes foreign goods cheap for Americans to buy.
But it also makes American-made products expensive for other countries.

This causes big problems:

Hurts US Factories: It’s harder for American companies to compete, leading to factory closures and lost jobs (millions were lost after China joined the WTO).
Unfair Trade: It keeps the US buying way more than it sells internationally.
Economic Unhappiness: People in areas hit by factory closures are struggling.
Burden of the Buck: The whole world uses dollars, which keeps the dollar strong, but this puts a strain on US manufacturers who pay the price.

Essentially, the strong dollar stacks the deck against American industry and workers.

What’s the Proposed Fix?

The core idea from Miran’s guide is to use tariffs (taxes on imported goods) as leverage to force other countries into a deal to make the US dollar weaker. This potential deal is called the “Mar-a-Lago Accord.”

Here’s the plan:

Use Tariffs as a Threat: Impose tariffs on countries that don’t cooperate. The idea is to pressure major trading partners (like China, Japan, Germany) to agree to weaken the dollar together.
- Other Pressure Points: Could also involve removing US security guarantees or taxing foreign governments’ US investments.
The “Mar-a-Lago Accord” (Plaza Accord 2.0): If countries agree, their central banks would sell off large amounts of their stored US dollars and buy their own currencies instead. This should lower the dollar’s value.
Goal: Bring Jobs Home: A weaker dollar makes US goods cheaper globally and imports more expensive domestically, encouraging manufacturing to return to the US.
Plan B (If Others Don’t Cooperate): The US could try to weaken the dollar alone, perhaps by charging fees on foreign governments holding US debt or by the US buying up foreign currencies itself.
Handling Side Effects:
- Inflation Risk? Implement tariffs slowly and boost US energy production.
- Interest Rate Risk? Encourage (or force) other countries selling US debt to switch from short-term to very long-term bonds to keep rates stable.

In short: Use tariffs as a powerful negotiation tool to achieve a weaker dollar, aiming to boost US manufacturing and jobs, while trying to manage the potential economic side effects.

Okay, here’s an even more condensed version:

The Problem (In a Nutshell):

The US dollar is too strong.
This makes imports cheap and US exports expensive.
Result: Lost US factory jobs, unfair trade, and economic pain for American workers. The dollar’s global role burdens US industry.

The Fix (Proposed Plan):

Use tariffs (import taxes) as a weapon to pressure other countries.
Force a deal (the “Mar-a-Lago Accord”) where countries agree to weaken the US dollar by selling their stored dollars.
Goal: Make US goods competitive again and bring manufacturing jobs back to the USA.
Manage Risks: Take steps to control potential inflation and interest rate jumps caused by these actions.

Okay, here’s a version shortened by roughly 20-30%, focusing on the core elements:

What’s the Problem?

According to Stephen Miran’s guide, the US dollar is overvalued (too strong). This makes imports cheap and US exports expensive.

The consequences are severe:

It harms US factories and jobs, making it hard to compete.
It creates unfair trade imbalances.
It causes economic distress in affected areas.
The dollar’s global reserve status burdens US manufacturers.

In short, the strong dollar disadvantages American industry and workers.

What’s the Proposed Fix?

Miran’s guide suggests using tariffs (import taxes) as leverage to negotiate a weaker US dollar, potentially via a “Mar-a-Lago Accord.”

The strategy involves:

Threatening tariffs (and other pressures like removing security guarantees) to compel trading partners (like China, Japan, Germany) to agree to weaken the dollar.
If they agree (the “Mar-a-Lago Accord”), their central banks would sell their stored US dollars, lowering the dollar’s value.
The main goal is making US goods competitive globally to bring manufacturing jobs back home.
If cooperation fails, the US might act unilaterally, perhaps by taxing foreign-held US debt.
Mitigating risks like inflation (slow tariff implementation, energy policy) and rising interest rates (shifting foreign debt holdings to long-term bonds) is part of the plan.

Essentially: Use tariffs strategically to achieve a weaker dollar, boost US manufacturing, and manage the side effects.

Briefing

Okay, here is the provided text transformed into Markdown format:

Executive Summary

This briefing document summarises the key themes and proposals outlined in Stephen Miran’s “A User’s Guide to Restructuring the Global Trading System” (referred to as the “User’s Guide”) and a summary of this paper. The central argument revolves around the idea that the overvaluation of the US dollar, stemming from its role as the global reserve currency (a “Triffin world”), negatively impacts US manufacturing and competitiveness. The “User’s Guide” explores various tools, primarily tariffs and currency policy, that a future Trump administration might employ to address this imbalance and reshape the global trading system. A key proposal is the “Mar-a-Lago Accord,” envisioned as a “Plaza Accord 2.0,” aimed at depreciating the dollar through negotiated actions and potentially coercive measures like tariffs and financial penalties. The author emphasises that this is not policy advocacy but an analysis of potential policy tools and their financial market consequences.

Main Themes and Important Ideas

1. The Overvalued US Dollar and its Consequences

The core problem identified is the significant overvaluation of the US dollar (USD) (estimated around 25%), driven by its status as the world’s reserve currency. This necessitates central banks globally holding large USD reserves for international trade, especially oil.
This overvaluation makes US imports cheaper for American consumers and US exports less competitive globally, hindering domestic production and re-shoring efforts. JD Vance is cited as frequently mentioning the negative impact of an overvalued dollar on re-shoring manufacturing jobs.
The “Triffin world” concept is introduced, explaining how the demand for reserve assets can lead to currency overvaluation in the reserve currency issuing country, even if its domestic trade balance is not the primary driver. The US must run persistent current account deficits as the “flip side of exporting reserve assets.”
Despite the disadvantage to manufacturing, the US benefits from reserve currency status through “somewhat cheaper borrowing” (though the magnitude is debated), and significantly, “financial extraterritoriality,” allowing the US to exert foreign and security policy through financial leverage (sanctions, SWIFT access, etc.) at minimal cost.
President Trump, despite acknowledging the dollar’s drag on manufacturing, values its reserve currency status and has threatened to punish countries moving away from the dollar. The “User’s Guide” suggests policies will aim to preserve the dollar’s status while improving burden sharing.

2. Tariffs as a Policy Tool

Tariffs are presented as a primary tool for reshaping the trading system, offering revenue and, if offset by currency adjustments, minimal inflationary side effects (consistent with 2018-2019 experience).
Currency offset is explained: tariffs can improve the trade balance, putting upward pressure on the foreign currency relative to the dollar. The example provided shows how a 10% tariff can be almost entirely offset by a 10% depreciation of the foreign currency, leaving the dollar price of imports largely unchanged.

“Tariffs provide revenue, and if offset by currency adjustments, present minimal inflationary or otherwise adverse side effects, consistent with the experience in 2018-2019.”
Tariff implementation is discussed, including “graduated implementation” (e.g., monthly increases to maintain negotiation leverage and avoid inflation spikes) and “graduated scales” based on various factors like trade reciprocity, currency policies, security alignment, and support for US interests. Scott Bessent’s proposal for categorising countries into different tariff buckets is mentioned.

“Such a policy will 1) gradually ramp tariffs at a pace not too different from 2018-2019, which the economy seemed able to easily absorb; 2) put the ball in China’s court for reforming their economic system; 3) allow tariffs to exceed 60% midway through the term, which is something President Trump has expressed wanting (“60% is a starting point”); 4) provide firms with clarity over the path for tariffs, which will help them make plans to deal with supply chain adjustments and moving production outside of China; 5) limit financial market volatility by removing uncertainty regarding implementation.”
The “User’s Guide” suggests tariffs could be used to pressure countries to join US tariffs against China, creating a multilateral approach.
The concept of “fiscal devaluations” is introduced, highlighting the theoretical equivalence of currency devaluation to a combination of import tariffs and export subsidies (or consumption tax increase and payroll tax cut) in boosting competitiveness.
The paper acknowledges the debate around optimal tariff rates and the potential for tariffs to address pre-existing distortions in the global trading system caused by other nations’ practices (e.g., subsidies, IP theft).
The possibility of linking trade policy with national security is raised, suggesting that retaliatory tariffs from allies might lead to a reassessment of US security commitments.

3. Currency Policy and the “Mar-a-Lago Accord”

The “User’s Guide” explores both multilateral and unilateral currency approaches to weaken the dollar.
A key proposal is the “Mar-a-Lago Accord,” envisioned as a “Plaza Accord 2.0” aimed at a significant depreciation of the USD (around 20% is mentioned as a likely prerequisite for re-shoring jobs).

“The “User’s Guide” policy paper essentially proposes using tariffs as a negotiation tool to drive down the dollar’s value via a “Mar-a-Lago Accord.””
The strategy to compel participation in the “Mar-a-Lago Accord” could involve:
1. Tariffs on exports to the US for non-participating countries.
2. Removing the US security umbrella for non-participants (e.g., Europe).
3. Taxing interest payments on US Treasury securities held by non-participating central banks (e.g., China).
Participation in the accord would likely entail central banks of trading partners selling “excess” USD FX reserves (above 3-4 months of imports) and buying their own currencies.
To mitigate the risk of rising US interest rates from central bank sales of US Treasuries, the author suggests encouraging (or compelling) central banks to shift from short-term T-Bills to very long-dated T-Bonds (potentially 100-year). This “buying duration” could offset upward pressure on rates.
The risk of illiquidity and mark-to-market losses on long-dated bonds for central banks is acknowledged, with the “Bank Term Funding Program (BTFP)” as a potential solution. A similar Fed swap-line facility for foreign central banks holding ultra-long dated USTs is envisioned.
Unilateral currency approaches discussed include the US accumulating foreign exchange reserves (limited by the Exchange Stabilization Fund’s size and potential for negative carry) and using IEEPA (International Emergency Economic Powers Act) to impose user fees on foreign official holders of Treasury securities, effectively reducing their yield and potentially incentivising diversification away from the dollar. This could be implemented gradually and differentiated by country.

4. Mitigating Negative Economic Impacts

The two main risks identified are:
- Inflation from tariffs.
- Rising interest rates from central bank selling of Treasuries.
Gradual tariff implementation is proposed to mitigate inflation spikes. A 20% dollar devaluation could increase US CPI inflation by up to 1%, but deregulation of domestic energy production (“Drill Baby Drill”) is suggested as a potential offset.
The strategy of encouraging central banks to hold long-dated bonds is presented as a way to prevent interest rate spikes.
The importance of securing cooperation from the Federal Reserve in managing interest rate volatility during currency policy shifts is highlighted, referencing the Fed’s “triple mandate” which includes “moderate long-term interest rates.”

5. Financial Market Consequences and Volatility

Currency offset of tariffs might lead to greater short-term financial market volatility, as seen in the 2024 example with the Japanese yen and carry trades. A large RMB devaluation could also trigger volatility due to China’s capital controls.
Financial market volatility from currency moves may exceed that from the passthrough of tariffs to consumer prices.
The “User’s Guide” anticipates a more forceful approach to reconfiguring the international system in a second Trump term, potentially prioritising legacy and core goals.
Despite volatility risks, President Trump’s concern for financial market health suggests a likely gradual approach to policy implementation.
A “much stronger demarcation between friend, foe and neutral trading partner” is expected, with differentiated trade and currency terms.
A structural increase in implied volatility in currency markets is predicted due to the potential for significant policy shifts.
The author suggests that tariffs are likely to be used prior to any currency tools, implying the dollar might initially strengthen.

Quotes

“Most economists believe the USD is overvalued by about 25%, so a circa 20% depreciation in the USD is probably a prerequisite to achieving Trump’s goal of re-shoring jobs to the US…”

“The strategy outlined in the “Users Guide” envisions three punitive measures the US could pursue to compel the cooperation of countries around the world in a Mar-a-Lago accord: 1) Tariffs on exports to the US that do not participate… 2) Removing the US security umbrella… 3) Taxing the interest payments of US Treasury Securities held by central banks that do not participate…”

“Regarding #2 interest rates, Miran advocates encouraging (compelling?) global central banks to switch from holding short-term T-Bills to holding very long-dated T-Bonds… in order to prevent a spike in USD interest rates during a Mar-a-Lago Accord / Plaza Accord 2.0…”

“Tariffs provide revenue, and if offset by currency adjustments, present minimal inflationary or otherwise adverse side effects, consistent with the experience in 2018-2019.”

“International trade policy will attempt to recapture some of the benefit our reserve provision conveys to trading partners and connect this economic burden sharing with defense burden sharing.”

“Wall Street consensus that an Administration has no means by which to affect the foreign exchange value of the dollar, should it desire to do so, is wrong. Government has many means of doing so, both multilaterally and unilaterally.”

Conclusion

The “User’s Guide” and its summary outline a potentially disruptive vision for restructuring the global trading system, driven by the perceived need to address the US dollar’s overvaluation and its negative impact on domestic manufacturing. The proposals, particularly the “Mar-a-Lago Accord” and the use of tariffs as a coercive negotiation tool, carry significant economic and financial market implications. While the author emphasizes an analytical approach, the document provides valuable insight into the potential policy directions of a future Trump administration and the complex interplay between trade, currency, and national security considerations. Understanding these potential tools and their consequences is crucial for anticipating future global economic developments.

Resources & Further Watching

Read the guide: ‘A User’s Guide to Restructuring the Global Trading System’ by Stephen Miran, Former Hudson Bay Senior Strategist: [https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf]
Read the summary: of “A User’s Guide to Restructuring the Global Trading System” by Michael Kokalari at Vina Capital: [https://vinacapital.com/wp-content/uploads/2024/11/20241129-Summary-of-A-Users-guide.pdf]
Watch Next (Playlist): Economics

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