"Trump Pressures for Weak Dollar to Reduce Trade Deficit"... Will a 'Mar-a-Lago Agreement' Emerge? [AEA 2025]

2025 AEA Annual Meeting
Professor Morris Obstfeld, UC Berkeley
"Raising Tariffs Strengthens Dollar... Worsens Trade Deficit"

"Trump's tariff policy has failed to resolve the trade deficit, drawing attention to a weak dollar. Other countries may face related pressure."

Professor Morris Opsfeld, UC Berkeley. San Francisco - Special Correspondent Haeyoung Kwon

There is a prospect that the second Trump administration could artificially lower the value of the dollar to address the trade deficit, raised at the '2025 American Economic Association (AEA) Annual Meeting' held from the 3rd to the 5th (local time) in San Francisco, USA.

Morris Obstfeld, a professor at UC Berkeley, predicted this during the 'Global Macroeconomics and Policy Outlook' session, stating, "Imposing tariffs causes a strong dollar, which further worsens the trade deficit."

He said, "Even if tariffs are raised, the effect on reducing the trade deficit or revitalizing manufacturing is minimal," and added, "Rather, it is likely to increase the prices of imported goods in the U.S. and lead to a stronger U.S. dollar."

Previously, President-elect Trump announced that he would pursue a weak dollar policy along with raising tariffs to resolve the trade deficit. However, tariffs are expected to lead to inflation and prolonged high interest rates, ultimately causing a 'king dollar' (strong dollar). This is why there are criticisms that President-elect Trump is creating a contradiction by pursuing a weak dollar while implementing policies that induce a strong dollar.

Professor Obstfeld predicted, "Ultimately, as the Trump team suggested, attention will turn to a weak dollar," and foresaw that the U.S. might pressure its trading partners to take measures to lower the dollar's value.

In 1985, the U.S. signed the Plaza Accord with major countries including Japan, Germany, France, and the United Kingdom to artificially lower the dollar's value against their currencies. It is explained that, as the expected tariff increases in Trump's second term fail to reduce the trade deficit, measures to devalue the dollar similar to the so-called 'Second Plaza Accord' will be taken. In the market, there is speculation that, inspired by the Plaza Accord, a 'Mar-a-Lago Accord' for dollar devaluation could be signed with major countries at the Mar-a-Lago resort in Florida, where President-elect Trump’s residence is located.

Professor Obstfeld conveyed that Steven Mnuchin, nominated as the chairman of the White House Council of Economic Advisers for Trump's second term, included many strong dollar correction measures in the 'Guide for Restructuring the Global Trade System' released in November last year. The report included various multilateral and bilateral approaches to devalue the dollar.