Jean-Pierre Landau discusses the 'Mar-a-Lago Accord' in a recent CEPR Policy Insight and VoxEU column

Jean-Pierre Landau, an affiliated faculty member at the Department since 2013 and former Deputy Governor of the Banque de France, recently published a timely Centre for Economic Policy Research (CEPR) Policy Insight that looks at “proposals gaining traction among economists and policymakers aligned with the new US administration, who seek to overhaul the global trading and financial system to better serve US economic interests.” (CEPR Policy Insight 142, available online).

We reproduce here a shorter version of his policy paper, originally published as a CEPR VoxEU column.

Tariffs, the dollar, and the US economy: A discussion of the ‘Mar-a-Lago accord’

Proponents of the ‘Mar-a-Lago Accord’ share an ambition to revitalise US industry and redress the country’s current account through the aggressive use of tariffs and, specifically, a reduction in the US dollar’s status as the dominant global reserve currency. This column argues that this strategy is based on a biased appreciation of the US situation and the costs and benefits for the US of the current regime. The strategy may prove extremely self-defeating for the US in the long run.

The concept of a ‘Mar-a-Lago Accord’ comes from an influential paper by Miran (2024). Many similar ideas are also developed in Pettis and Hogan (2024). These authors believe that current international trade and financial arrangements are flawed.  They share the same ambition: to fundamentally ‘reconfigure’ the system and better align it with US economic interests.

While they support the intensive use of tariffs, they depart from traditional protectionism. They do not dispute the mainstream argument that trade deficits reflect macroeconomic imbalances.  On the contrary, they embrace it. They see a close connection between the US’ trade and currency regimes. Persistent capital inflows into the US have led to a chronic overvaluation of the dollar, undermining US industrial competitiveness and resulting in current account deficits. These inflows are caused by (1) domestic distortions in China and other surplus economies whose excess savings spill over into the US economy; and (2) the US dollar’s status as the dominant global reserve currency, which creates a structural demand for dollar-denominated assets.

Their policy recommendations are not conventional. Most notably, they propose that the US impose penalties – or user fees – to discourage foreign governments from accumulating dollar-denominated foreign exchange reserves. While others see the dollar status as a ‘privilege’, these economists see it as a burden.  A diminished international role for the dollar is, in their view, an acceptable cost to pay for achieving their primary objectives: revitalising US industry and balancing the country’s current account.

In a new CEPR Policy Insight (Landau 2025), I look at four questions that are central to their argument:

1. Is China responsible for distorting global capital allocation?
2. Can tariffs and tariff reciprocity restore the US’ internal and external balance?
3. Is the strength and reserve status of the dollar a handicap?
4. Can countries be coerced into investing in US treasuries?
5. Is the overall approach aligned with US long-term economic interests?

Is China responsible for distorting global capital allocation?

Public policies in China are accused of generating excess savings (Pettis and Hogan 2024). Households are incentivised – and, in some cases, compelled – to save, due to the absence of a comprehensive social safety net and the underdevelopment of credit and saving instruments.  Corporate savings benefit from the low – and recently decreasing – labour share of national income.  As the argument goes, income distribution policies effect ‘indirect transfers’ to the benefit of corporations and exporters.  In that sense, all domestic policies “act as a form of trade policy” (Pettis and Hogan 2024). Finally, through state-owned enterprises (SOEs) and public subsidies, the Chinese authorities exert significant influence over the allocation and subsidisation of capital.

A good argument can certainly be made that China’s current account is significantly influenced by public policies. However, this is not the whole story. China also benefits: the size and diversity of its economy naturally generates economies of scale and learning-by-doing effects, both of which are further reinforced by state support.

Tariffs, reciprocity, and fiscal revenues

Proponents of the new system see tariffs are seen as purely revenue-raising instruments. The rationale is to tax foreign exporters and ease the domestic tax burden.  Tariffs should be indiscriminate and implemented across the board.

This raises the question of incidence: who, ultimately, bears the cost? The answer critically hinges on import price elasticities. When demand is inelastic, foreign producers pass the cost to US consumers through higher prices. If demand is elastic, exporters must absorb the tariff through price reductions, and US terms of trade improve.

But elasticities vary across goods and sectors.  The implications are clear. First, tariffs should differ according to imported goods. Uniform tariffs will most likely result in higher consumer prices in the importing country. Second, optimal tariffs are product-specific.  Tariff policy must align with a country's economic characteristics. There is no ‘one size fits all’ schedule. Each country has a unique configuration of optimal tariffs which depends on its production structure.

But US trade policy is now strongly inspired by the doctrine of ‘reciprocity’, according to which US tariffs should closely mirror those of its trading partners. It is certain that such tariffs will hit products with low elasticity and lead to significant increases in import prices. ‘Reciprocity’, therefore, has the dual effect of raising barriers to trade and, at the same time, pushing the country away from its optimal tariff structure. 

Multilateral trade negotiations are based on a different principle: reciprocal (and mutually beneficial) concessions.  Reciprocal trade liberalisation is not about symmetry, but about mutual gain. The beauty of the multilateral approach is that it makes it possible for countries to liberalise and, at the same time, get closer to their optimal tariff structure, if those structures differ  sufficiently between countries.

Dollar strength and reserve status

The argument goes as follows:

• Capital inflows into the US lead to a real appreciation of the dollar and a current account deficit. 
• A major driver of inflows is the buildup of foreign exchange reserves by other countries. They are the primary reason for the dollar’s overvaluation; and indirectly, the cause of US deindustrialisation.
• Reserve inflows will persist and amplify. The reasoning invokes a modern adaptation of the Triffin dilemma, where the supply of global liquidity by the US leads to unsustainable imbalances.  Today, as the narrative goes, the demand for forex reserves grows with the size of the world economy. But it must be absorbed by the US economy, whose share in world GDP is decreasing or constant. The US current account deficit must therefore constantly increase as a percentage of US GDP to maintain equilibrium.

There are two problems with this line of reasoning:

• First, the impact of reserves on exchange rate is overestimated due to a confusion between gross and net capital flows. The counterpart of the US current account deficit is net inflows of capital. Those net inflows are the algebraic sum of all gross inflows and outflows. Both gross US capital inflows and outflows drive the movements of the exchange rate. Reserve inflows represent only one (relatively small and irregular) component of total gross inflows. There is no clear reason to assert that they, rather than other capital flows, are the primary driver of exchange rate movements and the current account. Such a relationship is not consistently observed, as illustrated in Figure 1.

Figure 1 Dollar effective exchange rate (left scale) versus foreign exchange reserves in dollars (right scale), 2016 onwards

Source: Author’s calculation.

• Second, the costs and benefits of a strong currency are not thoroughly assessed. A strong dollar may penalise exports, but it helps the domestic economy through lower interest rates. Since the US is a relatively closed economy, it would suffer from a regime of higher interest rates and a depreciated dollar. This may have motivated previous administrations into affirming that “a strong dollar is in the interest of the US”.

Proponents of the 'new arrangement' take an opposite view. They tend to minimise the benefits of a strong dollar. They make the casual observation that US long-term interest rates have not been significantly lower than those in other countries in recent years ( Miran 2024). But this is not the proper benchmark.  The yield on long-term US Treasuries has two components: projected short-term rates and the term premium. When assessing the benefits of the dollar’s reserve status, what matters is the term premium. If anything, this has remained significantly compressed, signaling the status of the dollar as a safe asset.

This misdiagnosis is important and serious because it drives the most radical proposal of the new arrangement: that foreign holdings of US Treasuries should pay a ‘user fee’ (based either on the outstanding amount or the revenue), thus internalising the benefits that foreign countries draw from their access to US financial markets.

Can countries be coerced into using the dollar?

A new system would aim to achieve two objectives: depreciate the dollar to revitalise the US industry and, at the same time, achieve for the US better fiscal burden sharing through increased funding and contributions by other countries, including through tariffs. 

Meeting both goals would require a delicate balancing act. Foreign capital inflows in the US must be discouraged because they drive dollar appreciation, but foreign purchases of US Treasuries must be encouraged to finance the US deficit.

There is an obvious tension, and economic forces alone are unlikely to deliver this outcome. The essence of the arrangement is to strongly incentivise – or potentially coerce – other countries to continue using the dollar as the dominant reserve currency, even as its attractiveness is deliberately reduced.

Substituting coercion for attractiveness in international monetary relations would raise significant challenges. Forcing the use of an international currency in a free-market environment is difficult. In its most extreme form, it has only been done in regional groupings such as the Comecon, where inter-country relations were not governed by market forces and which were dominated militarily by one country. A case can be made that, during the Bretton Woods era and the early Cold War, US allies – especially in Europe – avoided policies seen as hostile to dollar stability. 

But today's context is fundamentally different. It would make any form of ‘global financial repression’ more difficult to implement and sustain. The world is multipolar. Potential alternatives exist to the dollar, at least in the long run.  The digitalisation of money will change the competitive environment. A change in the US approach to the dollar’s role and its status would almost certainly open the door to increased competition from other currencies, particularly from regions and countries that have long resented the dollar's supremacy and dominance.

Is the overall approach aligned with US long-term economic interests?

Should the US seek a weakened currency and a diminished international role for the dollar in order to revitalise US industry and redress its current account? 

Consider the priority given to industry and the reliance on dollar depreciation to achieve reindustrialisation. It is common, even amongst economists, to think that industry is ‘special’. But why is it so? The assumption is that industry carries specific externalities for the rest of the economy, such as technology creation and diffusion, training, or learning by doing.  As the world’s technological frontier economy, the US already possesses comparative advantages in sectors where such externalities are most significant, notably AI and the digital economy.  Those advantages can be threatened by strategic competition with China and may need to be reinforced through targeted subsidies or strategic trade policy measures – semi-conductors being a good example. But a policy of sustained dollar depreciation will not yield real benefits in those advanced sectors where the US is already a price maker. The emphasis on the exchange rate actually reveals the true priority: to revitalise traditional industries (those that have been particularly hit by the ‘China shock’) and to recreate the jobs that have been lost as a consequence. 

However, eroding the US dollar’s role as the world’s primary reserve currency may not serve any of these objectives.  And the costs may be significant. Today, the US dominates the international monetary and financial system because it issues the safest assets in the world. Despite a negative net international investment position, the US consistently generates a positive net income from abroad, which contributes to its GDP. From a purely fiscal standpoint, the issuance of safe assets yields for the US an invisible seignorage many times bigger than the revenues that could be raised from any proposed burden-sharing mechanisms. As long as Treasury debt is considered safe and liquid, it is held voluntarily by foreigners at a low interest rates despite  persistent and growing fiscal deficits projected  over the long run.  The value of US debt derives not only from its projected cash flows, but from its unparallelled safety and tradability. Brunnermeier et al. (2022) identified a ‘bubble’ component in the valuation of this debt. That bubble can be profitably ‘mined’ in the form of higher and cheaper debt issuance in the future.  According to Choi et al. (2024), the safe asset quality of US Treasuries allows the US to issue 30% more public debt than otherwise would be possible, everything else equal

Overall, the conjunction of policy changes envisaged in the ‘new arrangement’ may prove, for the US, very self-defeating. The strategy aims at solving ‘old’ deindustrialisation problems, but it does so with the wrong remedy. It stems from a biased appreciation of the costs and benefits.  Looking at issues from a purely fiscal angle also distorts the perspective. Eroding the dollar’s role would aggravate rather than reduce the distensions that exist in the international economy, to the detriment of the US and its partners. It would deprive the world of the safe assets it needs for the efficiency and stability of the global financial system. Many of the US’ competitors would be happy to participate and assist in the dollar’s demise, which has been a strategic objective for some of them for the last two decades.

References

Brunnermeier, M K, S A Merkel, and Y Sannikov (2022), “Debt as Safe Asset”, NBER Working Paper No. 29626.

Choi, J, D Q Dang, R Kirpalani, and D Perez (2024), “Exorbitant Privilege and the Sustainability of U.S. Public Debt”, NBER Working Paper No. 32129.

Landau, J-P (2025), “Tariffs, the dollar and the US economy”, CEPR Policy Insight 142.

Miran, S (2024), A User’s Guide to Restructuring the Global Trading System, Hudson Bay Capital.

Obstfeld, M (2024), “Mistaken Identities Make for Bad Trade Policy”, PIIE Policy Brief 24-13.

Pettis, M and E Hogan (2024), Trade Intervention for Freer Trade, Carnegie Endowment for International Peace.

Weiss, C (2022), “Geopolitics and the U.S. Dollar’s Future as a Reserve Currency”, International Finance Discussion Papers No. 1359, Board of Governors of the Federal Reserve System.