The Mar-a-Lago Accord is a misguided plan to reshape global trade and finance
- The swift and aggressive implementation of tariffs by the Trump administration is challenging the dollar’s global role. Aggressive tariffs align with the Mar-a-Lago Accord proposal, which suggests sequencing tariffs as part of a broader effort to reshape the global trading and financial system.
- Proposals to impose a so-called “user fee” on foreign holders of Treasury securities, along with ideas for implementing a foreign withholding tax on US financial assets, raise important questions about the safe-haven status of US Treasuries. Are tariffs on capital the next step after tariffs on goods?
- The Mar-a-Lago Accord aims to address dollar overvaluation and the US twin deficits by using tariffs and security guarantees as leverage with trading partners. The goal is to depreciate the dollar while preserving its reserve currency status, and the accord proposes solutions such as currency interventions and debt swaps for extended Treasury duration.
- In our view, the Mar-a-Lago Accord is misguided from both a theoretical and practical perspective. The most radical parts of the plan would challenge US financial stability by destabilizing Treasuries, eroding Fed independence, and undermining the dollar’s reserve currency status.
- We think it’s highly unlikely that the plan will be implemented in full, but it cannot be completely ruled out that some parts start to be discussed, including a small fee on interest payments on foreign holdings of Treasuries. This fee might only apply to new issuance and vary among countries, and it most likely would not be introduced during times of market turmoil. Even so, this would still represent a major risk for the US bond market and financial stability at large.
