Comment: the Trump Economic Plan that can be much risky than rates

What if the rates are just the beginning? What if President Trump has a much more brave plan to reform the US economy, regardless of the consequences?

Investors hope it is not. But they still pay attention to a concept that is known as the ‘Mar-A-Lago Accord’, which would dramatically reduce the global capital flows by permanently devaling the US dollar, re-finance trillions of US debts and bringing the United States into a many more opponents with its trading partners. Most of the doubt will come down, but Trump is so unpredictable that investors learn to prepare for the unthinkable.

The idea of ​​a “Mar-A-Lago Accord” comes from Stephen Miran, who was a senior strategist at investment company Hudson Bay Capital last November when he wrote an essay of 41 pages about “Restructuring of the global trading system.” Miran wrote from a Trumpian perspective and explained how the preference of the incoming president for rates and protectionism could be the foundation to reform a large part of the world economy.

The newspaper would probably have received little attention, except that Trump tapped Miran to lead the White House Council of Economic Advisers. He started the job this month. Trump himself has said nothing publicly about Miran’s Mar-A-Lago plan.

But now that Miran is a whisperer from Trump, investors want to know what he might whisper. “Wall Street cannot stop talking about Mar-A-Lago’s Accord,” Marketwatch said earlier this month.

The starting point behind Miran’s plan is that the US dollar has been overvalued for decades, leading to chronic trade shortages – and the migration of production from the United States to other countries such as China. Conversely, that imbalance would therefore require a devaluation of the US dollar, Trump seems to prefer.

When the dollar is relatively strong, imports become cheaper for Americans, while American exports to other countries are becoming more expensive. This appears as a growing trade deficit of goods, as the gap between input and export grows. The trade deficit for goods was $ 1.2 trillion in 2024, the highest ever and 175% larger than the shortage in 2000.

Trump thinks that the growing trade shortage is inherently bad. Economists do not necessarily agree.

The US economy is powered by consumption and more imported products at lower prices increase the purchasing power of Americans. Running a trade deficit is not harmful if the American economy is otherwise healthy, with many investments, innovation and creating jobs.

Many experts also think that a strong dollar is better for the United States than a weak dollar. “An Accord from Mar-A-Lago would be pointless, not effective, destabilizing and only lead to the erosion of the leading role of the dollar in the global financial system,” wrote economists Steven Kamin and Mark Sobel of the American Enterprise Institute.

They claim that a strong dollar gives American companies privileged access to overseas markets, while economic stability is improved at home.

It is true that much lower assembly line work has left the United States and that employment has fallen. But production has been falling for years as a percentage of the output in all advanced economies of the world, because growth comes from technology and services. Since the 1980s, production has fallen as a share in the GDP of the US from about 25% to less than 10%. Yet the industrial output of America is almost as high as has ever been. Manufacturers easily make more with fewer employees because of automation, technology and innovation.

If there is a fatal error in the economic thinking of Trump, it is his fetishing of production.

The service economy today employs 86% of American employees. Only 8% work in production. And the United States have a long -term trade surplus in services and export more than it imports. “Are assembly lanes good jobs? Yes,” said economist Mary Lovely of the Peterson Institute for International Economics in the last episode of the Yahoo Finance Capitol Gink Podcast. “But there are many other good jobs in the US.”

Despite a few rough patches, the United States has the world’s most dynamic and sustainable economy for at least 40 years. If the United States are somehow disabled by a lost blue-collar economy and a game trading system, it is a handicap that would like to endure a nation.

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Trump nevertheless bases his entire economic plan to stimulate the production sector.

Rates would only be the beginning in the Mar-A-Lago plan. Devaluing the dollar would come afterwards. To do that without printing money and activating away inflation, the Trump administration should intervene on currency markets. If other countries agreed with Trump’s plan to devalue the dollar, the signatories could all collect from Mar-A-Lago and collect an agreement in the financial history of the Marquee in financial history.

However, voluntary agreement is unlikely, because trading partners would end up in the disadvantage. “The circumstances do not look good for a voluntary currency agreement,” Capital Economics said in a recent analysis of the idea. “But a compelling deal that is forced by the US by the US to use threats or incentives can be possible.”

A “compelling” deal would mean a way to reduce the flow of foreign money to American dollar assets, in particular Treasury Securities. For example, Miran suggested a new user costs for some foreign purchases from Treasurys, which would reduce the demand for treasurys and weaken the dollar. But that would force the interest rates higher in the United States, and Trump wants lower rates, not higher rates.

So there should be some corrective for rising rates.

A concept here is that the Trump team somehow the current foreign holders of Treasury Securities, which have a maximum duration of 30 years, can force a new “century” binding with a 100-year duration. The catch is that Century Bonds would be difficult to exchange on public markets such as Treasurys now act. So there should be a new way to offer liquidity if Century Bondwarden needed it, such as short -term loans from the Federal Reserve.

Read more: What are bonds, and how do you invest in it?

There are other twists and wrinkles. For example, Trump has talked about setting up an American sovereign power fund, that if it ever existed, he could use the dollar lower by buying huge amounts of foreign assets. The United States could use its role as a Defense Garant for countries such as Taiwan, South Korea and a large part of Europe to try to force them to buy bonds for centuries. Trump could also dangle the tariff lighting as a stimulus for foreign help devaluating the dollar.

If this schedule sounds remarkably complicated, it is.

“There is no easy way to weakening the dollar,” said Oxford Economics in a report of 20 March. “Achieving the size of the depreciation that we think would be necessary to have a significant impact on the trade deficit to swim at a strong tide. The costs imposed on the economies and financial markets in the US and beyond can be great.”

These costs would probably include a stronger higher prices for both imported and domestic goods, higher interest rates and whatever economic damage the disruption can cause.

A worst-case outcome would be the trust of investors in the holiness of American treasurys, which could happen if the United States interpreted everything that is interpreted as standard, or refusal to pay, pay, to which treasury holders have legal right. That would certainly devalue the dollar, but at the devastating costs of much higher rates for Treasurys to compensate holders for the higher risk of losing their money. If that happened, the US government costs would explode, and the gigantic national debt, now $ 36 trillion, could quickly become untenable.

Economists also point out that there are better ways to tackle some legitimate problems in markets. One reason why the dollar can be somewhat overvalued today is the enormous amount of debts that the treasury has issued to finance annual shortages that are now almost $ 2 trillion per year. “If the reduction of American domestic demand was made through tax tightening, it would have an extra advantage of bringing the US government debt to a more sustainable path,” Capital Economics said.

There are also real victims of global trade, including American production cities that employers lost with no one to take their place. Growth industry such as green energy, data centers, storage and health care to such areas would probably be more effective than trying to hold the companies of the past. There is also a constant need for traders and a mismatch between the skills that companies need and the skills that employees have who can make much better reconciliation.

Trump of course sees rates as a kind of multi -tool that can solve many problems, including some that may not be any problems at all. Investors generally do not like Trump’s rates, which have dented share values ​​and have increased new inflation fears.

But rates can be tame medicine compared to other drinks that Trump could try to set up.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Extingy And X: @rickjnewman.

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