The proposed Mar-a-Lago agreement represents an attempt to reshape the global economic order through a combination of monetary and trade policies aimed at reducing the US trade deficit and promoting domestic manufacturing. Although this initiative has not yet been implemented, it has sparked widespread debate among economists and investors about its feasibility and potential implications.
Background to the Agreement
In November 2024, Stephen Meeran, Chairman of the US Council of Economic Advisers, published a research paper titled “A Guide to Restructuring the Global Trading System,” in which he proposed a strategy to address the US trade deficit by devaluing the US dollar. This strategy is based on using tariffs as a tool to pressure trading partners, in addition to restructuring US debt through the issuance of long-term bonds.
Objectives of the Agreement
The agreement aims to achieve several main objectives:
Devaluing US dollar: by encouraging trading partners to appreciate their currencies against the dollar, which enhances the competitiveness of US exports.
Debt Restructuring: Converting short-term bonds into long-term bonds, which reduces US debt servicing costs.
Promoting domestic manufacturing: by protecting US industries from foreign competition and encouraging investment in the industrial sector.
Proposed Mechanisms
The agreement relies on several mechanisms to achieve its objectives:
Tariffs: Using them as a tool to pressure trading partners to adjust their monetary and trade policies.
Issuing long-term bonds: Converting existing bonds into 100-year bonds, reducing the need for frequent debt refinancing.
Linking trade to national security: Using US security guarantees as a means of pressuring allied countries to comply with the agreement.
Potential Implications
If the agreement is implemented, it could have far-reaching repercussions:
Rising commodity prices: as a result of the devaluation of the dollar, which increases the cost of imports.
Increased demand for gold: as a safe haven investment during market volatility.
Criticisms and Concerns
Given the risks of negative market reactions to several of these steps, the success of the Mar-a-Lago agreement requires the Federal Reserve to act as a key enabler. For example, if central banks’ shift to long-term Treasuries causes panic selling by private investors, the Fed could intervene to ensure stability. It could also be asked to provide short-term liquidity to central banks holding long-term bonds, which are likely to be thin and volatile.
The proposal has drawn several criticisms from economists:
Ineffectiveness of dollar depreciation: Some experts suggest that depreciating the dollar could increase inflation, without achieving the desired benefits of boosting manufacturing.
Risks to the global financial system: The shift to long-term bonds could reduce their liquidity, destabilizing financial markets.
A negative impact on international relations: Using security guarantees as leverage could harm relations with allies and undermine confidence in U.S. leadership. The Mar-a-Lago agreement represents a bold attempt to reshape the global economic order through policies aimed at boosting domestic manufacturing and reducing the trade deficit. However, the risks associated with these policies, including potential negative impacts on financial markets and international relations, make it imperative to carefully evaluate their feasibility before implementing them.
Investors are facing growing concerns about US President Donald Trump’s dollar policies, especially amid talk of a potential agreement known as the “Mar-a-Lago Agreement.” This agreement aims to weaken the dollar to boost US exports and reduce the trade deficit, inspired by the 1985 Plaza Accord.
According to proposals by Stephen Meyer, chairman of Trump’s Council of Economic Advisers, the agreement would include measures such as converting foreign countries’ holdings of US Treasury securities into long-term bonds, in exchange for continued US security protection and avoiding punitive tariffs. However, these steps could be considered manipulation of the bond market.
Potential Impact on the US Treasury Market
:1Default Risks and Loss of Confidence
If the government forces Treasury bondholders to exchange them for 100-year zero-interest bonds, markets will treat it as a default and credit agencies will downgrade the United States’ credit rating. This downgrade could prevent many investment funds from holding these bonds, given the restrictions on their investments.
- Implications for Credit Ratings
Defaults would lead to severe credit rating downgrades, increasing borrowing costs and negatively impacting the U.S. economy. This downgrade could cause investors to exit the U.S. bond market in search of safer investments.
- Effects on Liquidity and Demand
Forced swaps would lead to a decline in liquidity in the bond market, as investors would avoid dealing with bonds that might be unexpectedly restructured. This decline in liquidity would increase market volatility and affect price stability.
- Shift to Corporate Debt
Loss of confidence in Treasury bonds may push investors toward higher-quality corporate debt, potentially leading to corporate debt trading at lower yields than Treasury bonds. This shift will alter the market structure and impact the government’s ability to finance its deficit.
- Impact on Global Markets
Disruptions in the U.S. bond market will impact global markets, as Treasury bonds are used as a benchmark. Any decline in confidence will lead to volatility in other markets and higher borrowing costs globally.
Financial markets are already showing signs of stress, with the dollar declining 9% since January 2025, its largest decline in three years. Trump’s aggressive trade policies, including the imposition of sweeping tariffs, have also contributed to market instability.
On the other hand, many economists question the feasibility of implementing the Mar-a-Lago Accord, given the complexities of current global economy and difficulty of achieving consensus among major countries on revaluing their currencies. Such an agreement could also undermine the dollar’s global standing.
Are there opportunities for Europe here?
Amid these developments, investors remain on tenterhooks, trying to assess the impact of these policies on their investments, amid an unstable economic environment and unorthodox political trends.
If one of the obvious byproducts of the above agreement is the dismantling of the dollar’s reserve currency status, the environment may be ripe for the eurozone to develop its reserve status. Eurozone leaders plan to address criticisms of fragmented debt markets by issuing more joint debt—a topic they are actively discussing as Europe re-arms.
In our work on de-dollarization, we consistently find that dollar-denominated debt plays a key role in maintaining the dollar’s dominance. Therefore, measures to encourage the growth of the euro-denominated debt market would be welcome. It would also help Europe accelerate Capital Markets Union—its ambition to complete a single European capital market.
