The American president is in a rage. An Asian economic powerhouse is flooding global markets, and its currency, according to the US leader, is unfairly weak. This president believes decisive action is needed to rectify the global trade imbalance. Simultaneously, this powerful figure is also targeting Europe, particularly Germany, another significant exporter to the United States.
Sound familiar? This was the global economic landscape in 1985, with Ronald Reagan in the White House and Japan as the perceived threat. Nicolas Goetzmann, an economic research director at Financière de la Cité, highlights the striking parallels between then and now. The crisis in 1985 culminated in the Plaza Accord, signed in New York on September 22nd. Major economies coordinated to depreciate the US dollar, leading to a significant surge in the value of the yen, Deutsche Mark, and French franc. This historical event serves as a crucial backdrop as we consider the potential for a similar agreement today.
Could history repeat itself, but this time with China in Japan’s former role? The idea of a “Mar-a-Lago accord” has been circulating within business circles. This hypothetical accord, named after Trump’s resort, suggests a strategy where the US could pressure China and Europe to allow their currencies, particularly the yuan and the euro, upward, effectively devaluing the dollar and potentially easing trade tensions. For those watching the Euro Upward trend, this historical context provides valuable insight.
Stephen Miran, now nominated to chair the White House’s Council of Economic Advisers by Donald Trump, offered a potential roadmap in a November 2024 speech. He proposed that President Trump views tariffs as leverage. Miran suggested that imposing tariffs could make trading partners like Europe and China more willing to negotiate a currency agreement in exchange for tariff reductions. This implies a scenario where to avoid tariffs, nations might agree to policies that would push the euro up and the yuan up against the dollar.
Miran further elaborated on Trump’s negotiating tactics, mentioning both “sticks” and “carrots.” Beyond tariffs, the “carrot” of defense spending was also presented as leverage. The message is clear: either agree to currency adjustments that could see the euro up, or risk a reassessment of US security commitments. This two-pronged approach could significantly influence the future of international trade and currency valuations, particularly the potential for the euro upswing in value.
