The U.S. dollar is the dominant currency in the world when it comes to a reliable and long-term store of value and as a widely accepted currency with which to transact. Adding to the high floor price for the value of the greenback against other major currencies is the reality that geopolitical instability and uncertainty increase demand for the greenback as a safe-haven currency. For these reasons, there are structural reasons for the U.S. dollar to remain relatively high vis-à-vis other major currencies.
As Trump returns to the presidency, he is unlikely to achieve a coordinated depreciation of the U.S. dollar against other major currencies such as the euro, yen, and renminbi. It is difficult to see Europe, Japan, and China agreeing to a Mar-a-Lago Accord in some form.
Indeed, I do not think a coordinated appreciation of one’s currency against the dollar is Trump’s highest strategic objective in any event. His primary intention is to reinvigorate and revive American manufacturing and the country’s industrial and technological bases. Rather than a coordinated depreciation of the greenback which will be difficult to achieve, Trump is better off focusing on other factors: lowering the cost of energy in the U.S. economy, lowering corporate taxes, and eliminating or reducing burdensome regulations. It also appears that Trump will use tariffs to persuade or else compel foreign firms to invest and locate operations within the United States. But a Mara-Largo Accord is neither likely nor necessary to achieve Trump’s higher objectives.
Regarding tariffs, Trump will use the threat of these against allies and friendly economies to encourage firms from those countries to invest in the United States and as a coercive negotiating tool to extract concessions such as higher defense spending in return for American protection. When it comes to China, tariffs will be used for a different purpose. Unlike Europe and Japan who are seen as economic competitors, China is perceived by Trump to be a geopolitical and economic rival to the United States. This means that measures such as tariffs and export controls will be used to structurally prevent China from gaining economic and technological ascendancy over the United States in what is seen as a comprehensive geopolitical contest between the two countries. This is a very different mindset and framing to the use of tariffs and other tools to give the United States a competitive advantage against “friendly” economies such as Europe and Japan.
To be sure, managed currency policies through intervention in money markets by their central banks is a source of annoyance for Trump. He also seems unhappy that a manufacturing and trading powerhouse such as Germany enjoys the advantage of a euro that is lower in value against the U.S. dollar than the previous German deutsche mark might have been. But U.S. dollar appreciation is not the strategic endgame, especially since Trump wants the U.S. dollar to remain the world’s reserve currency. Therefore, he is unlikely to waste his political or coercive capital on establishing a Mar-a-Largo Accord, and instead pursue different bilateral objectives against individual economies such as Europe, Japan, and China.