[Music] Bloomberg audio Studios podcasts radio news I'm Caroline HEPA and this is here's why where we take one news story and explain it in just a few minutes with our experts here at Bloomberg most followers of us politics now know Mara Lago the summer residence and bolt hole of President Donald Trump but financial markets are starting to talk about the resort for a different reason it's about taking your creditors into a room for the United States of America and actually saying you got to swap your treasuries for longterm debt now this is radical nobody's saying
that this is actually going to happen now why are we doing this the idea is to reorient the trade the world global trade system which we seem to be trying to do with tariffs to bring down the value of the dollar to bring down interest rates and to make the us more competitive that's what the goal is I don't think anybody's really taken a really creative approach to problem solving with regard to this debt and what we're saying out of the Trump Administration in so many different parts uh is a very creative and new thought
approach Trump is rewiring global trade with threats of tariffs he's upended geopolitics NATO and the Global Security framework given the president's unconventional and high stakes Maneuvers some on Wall Street are wondering if the international Financial system may be next the concept of deliberately weakening the US dollar to help the American economy is causing a stir in the markets so here's why the idea of a Mara Lago Accord has everyone's Attention our global economy correspondent Ender Karen joins us now to explain hi Ender what is this phrase Mara Lago Accord and where has it come from
at its core it's all about how president Donald Trump wants to shake up the way the US trades with the rest of the world and at the core of that is the US dollar as America's currency and that's driving speculation that perhaps president Trump will look for some kind of a grand multinational bargain that would effectively end with a weaker US dollar that would help us exporters sell produce around the rest of the world and the name that some analysts are calling it is they're dubing it the maral Lago Accord after Trump's private club in
Palm Beach Florida as I say this is all early days and it's speculation but the the thinking is that at some point president Trump will turn his attention towards to currency and look for some kind of a big deal on that front Okay so that's on weakening the dollar what could this possible concept agreement attempt to accomplish beyond that so here's the thing the US trade deficit has blown out it hit a record $1.2 trillion in 2024 president Trump is not happy with that he sees that as America sending money abroad part of the story
here is that the dollar is historically strong that undermines us competitiveness by making Imports cheaper and of course at the cost of their own exporters and in fact some analyst in the currency market look at the dollar today is being overvalued when you say base it on a domestic purchasing power of a currency now when you consider all of that the thinking is that President Trump might at some point get his advisors together and say how could we meaningfully weaken the dollar to help our exporters and that's where you get into the mechanics of how
this might work indeed How could a maralago agreement work so there are different ways of approaching it one simple way would be that America would reach an agreement with key trading partners asking those trading partners to boost domestic consumption of their own Goods that they produce rather than sell their goods overseas at a cheaper price into America that would reduce their manufacturers Reliance on exporting to DS for example and one case in point there of course would be China it's a focus for its exports and huge manufacturing base and the fact that it's able to
export at a competitive price compared to its us counterparts so the thinking is look you foreign trading partners buy more of your own stuff add and sell it to us that's one way to rebalance it another way of course could be to intervene into Foreign Exchange Market get your trading partners to agree on either buying or own currency to to make it stronger selling the dollar to help weaken the dollar but you know the Foreign Exchange Market is worth around 7.5 trillion so it would take a lot of buying and spending of currencies to really
make a dent in that and then there are some other levers and tools that governments could pull but you know it all comes down to what levers could they agree on that would effectively weaken the US dollar and strengthen their own currencies have similar Accords been agreed before yes in 1985 we had what was called Plaza Accord that was was named after the hotel in New York where officials met and it was a broadly similar backdrop and idea the story back then was high inflation High interest rates and a strong dollar so the US needed
an agreement with at that time it was France Japan UK and then West Germany that they would allow their currencies to strengthen against the dollar and allow the dollar to weaken because the thinking was back then that the strong green back was hurting the global economy now of course back then the central casting villain so to speak was Japan because they were dominating the manufacturing and Export Market they were sparking protectionism backlash from us lawmakers in a in a way that China is today so Japan came on and signed onto that agreement though that deal
was later blamed in part for some of Japan's own economic demise what do different investors think about this idea there are a couple of ways of thinking about it on the one hand it's still very early investors say a lot of this is speculation to be clear uh president Trump and his officials do talk about the need for a strong continuing to strong dollar policy of the US for example on the other hand though H the same investors will say you know president Trump is serious about shaking up the way the US is doing business
with key trading partners he's already proving to be unconventional with some of his policy decisions and announcements his treasury secretary Scott bessent has before he took office spoken of the need for some kind of a gr economic reordering so at the very least the idea that Trump and his officials won't be thinking about what they could do around a strong dollar doesn't sound completely implausible but that's where you know the rubber hits the road when it comes down to what exact levers can the US pull how effective would it be how realistic is it that
they could agree in accord with trading partners and indeed trading Rivals to allow the dollar to weaken and their currencies to strengthen on paper it sounds doable but in practice it might be very difficult one to get across the line there's another Market that could be affected the US Treasury Market the debt Market what would be the consequences of restructuring that so one of the ideas could be that the US government could issue government bonds that don't pay interest so-called zero coupon and they mature in 100 years uh some people out there for example former
credit swis analyst zon posar is one of those who've made the suggestion of maybe an agreement between the US and its military Partners whereby in return for a security guarantee allies are required to buy these zero Century bonds and what would that do it would take pressure off the US repayment schedule take pressure off the US interest rate profile interest rate burden which of course is one of the key uh expense outlays for the government right now and it could be bundled up as part of this whole Grand package of a Maro Accord as I
say you know these are all talking points these are what analyst say could be done but getting all of these agreed it seems to be I think way off just yet so what are the downsides to this agreement if any and who would have to deal with them so when we had the plaza cord back in 1985 it sounded like a good idea at the time Japan signed on but ultimately they blamed it for allowing the the yen to become too strong and that played a role in Japan's own economic demise and in fact it
had to follow up with another agreement to lur of Accord in 1987 to try and draw a line under that so there's there's history that these Accords don't necessarily work according to plan and then more practically for American consumers under one hand right now they have a strong currency that means they can buy products from around the world at a competitive price and of course when they travel and go overseas it's a good time to go on holidays a weaker currency means they're going to be importing higher prices that means of course potentially higher inflation
and that will erode their purchasing power and if we did get to a point where the dollar was weakening sharply it might lose some of its appeal for foreign investors who don't like volatility they like strength and strong currencies they like stability they might look at maybe alternative assets maybe the Euro maybe elsewhere that's if the US dollar was to get into weakening spiral those are some of the downsides that could come out of an agreement like this thanks to our global economy correspondent Ender curan for more explanations like this from our team of 3,000
journalists and analysts around the world search for quick take on the Bloomberg website or Bloomberg business app I'm Caroline h this is his why we'll be back next week with more thanks for listening
