Vocabulary

 

 
 
 
 
 

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Transcript

 

Donald Trump, President of the US: “My fellow Americans this is Liberation Day waiting for a long time. April 2nd 2025 will forever be remembered as the day American industry was reborn, the day America’s destiny was reclaimed, and the day that we began to make America wealthy again.”

It’s been a little over a month since US President Donald Trump upended the global economy with a huge onslaught of tariffs.

It’s been a wild ride; within a week of so-called Liberation Day most tariffs were paused while those on China were ramped up to 145% before a deal was struck markets have reeled, and since bounced back.

Uncertainty abounds.

Take the US dollar: it has slumped sharply since Trump’s inauguration in January losing value against other major currencies. Big announcements have been followed by sharp dollar falls as investors lose faith in the currency and the US economy in general.

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Unintended consequences are part of a deeper plan: many in Trump circle believe the dollar is overvalued and its strength is responsible for many of the issues they want to address, from trade deficits to de-industrialization.

And some believe that Trump’s team are eyeing an alternative grand bargain in order to reshape the global financial system in America’s favor.

So is there a philosophy behind the chaos, or is it simply — chaos?

It’s coming up on Business Beyond.

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Speculation that Trump has a radical plan to upend the global economic system has been rampant. It’s an idea that goes beyond tariffs; it’s about convincing other major economies to devalue the dollar.

A major catalyst was this a paper published in November 2024 by the investment firm Hudson Bay Capital Management. It said Trump’s return to the White House put America on the cusp of generational change in the international trade and financial systems.

It suggested that rather than face punitive tariffs, trade partners like Europe and China become receptive to a quote unquote “currency accord”.

In other words, that the tariffs simply be used as a bargaining chip towards dollar devaluation and it gave the potential agreement, named the Mar-a-Lago Accord, the idea being that the great nations of the world would meet at Trump’s Florida base to thrash out a deal on global currency exchange.

A paper like this could easily slip by unnoticed but this one got people talking because the author was Steven Myron, now Trump’s chairman of the Council of Economic Advisers, right at the center of policymaking in the White House.

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In his pitch, Myron referenced big moments in economic history where currency rules were agreed at grand gatherings. And it is true that rules can change quickly.

One of the most well-known summits came at Breton Woods in New Hampshire towards the end of World War II in 1944, where allied nations forged a new financial system.

The Brentonwoods order established stable exchange rates between currencies and set the US dollar as the world’s main reserve currency.

Used for most international trade it also established global financial institutions like the World Bank and the International Monetary Fund.

Crucially the system enshrined the gold standard which pegged the value of currencies to gold.

In 1971 the so-called Nixon shock saw President Richard Nixon end dollar convertability to gold. Major currencies were soon traded on floating exchange rates.

But by the mid 1980s the US dollar was seen as seriously overvalued amid strong economic growth and large trade deficits.

At New York’s Plaza Hotel in September 1985 the then G5 nations of the US, Japan, West Germany, France, and the UK agreed a major intervention in currency markets to depreciate the dollar against their own currencies.

It became known as the Plaza Accord.

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Now in 2025 many in the Trump administration favor a similar redrawing of the international financial order.

Myron argues that for decades the US dollar has been too strong mainly due to its reserve currency status and that that has made American exports too expensive leading to massive trade deficits and de-industrialization.

There are various ways of measuring the relative strength of the US dollar. One of the most reliable is the Real Broad Dollar Index, used by the Federal Reserve. It’s weighted by trade volumes and includes many other currencies.

Looking at its progression over the last 20 years, we can see that since the lows of the financial crisis in 2011, the dollar has been getting stronger and stronger, despite a few bumps.

Before Trump took office, it was at its strongest point since this measure began in 2006.

A more long-term measure is the US dollar index it’s not weighted by trade and measures the dollar against a few other major global currencies.

It surged in the early 1980s leading to the 1985 Plaza Accord it fell sharply before rising again in the late 1990s amid the Asian financial crisis.

The dotcom bubble crash in the early 2000s prompted another fall as did the global financial crisis, but since then the dollar has been on an upward curve.

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We approached Steven Meyer for an interview but he wasn’t made available to speak to us; however in a speech he made at the Hudson Institute last month he explained how the global demand for dollars has led to imbalanced international trade.

Steven Meyer, “The reserve function of the dollar has caused persistent currency distortions and contributed along with other countries unfair barriers to trade to unsustainable trade deficits these trade deficits have decimated our manufacturing sector and many working-class families in their communities to facilitate non-Americans trading with each.”

Central to his argument is the reserve currency role: countries like to hold foreign reserves for various reasons and they want to hold them in a dependable currency.

The US dollar is undeniably the world’s reserve currency more than half of all foreign reserves are held in US dollars, leaving it way ahead of the euro in second place.

It’s sometimes suggested that the Chinese Renminbi could emerge as an alternative reserve currency but current data shows just 2% of international reserves are held in it.

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Many economists agree that the dollar is too strong, but there are disagreements around the reasons for that and its consequences.

Mark Sobel, OMFIF Chair, former Treasury Official: “I dislike the Myron piece uh quite strongly i think it’s wrongheaded.”

That’s Mark Sobel a veteran US Treasury official, he worked in international financial diplomacy for much of his career, and is now the US chair of the Official Monetary and Financial Institutions Forum think tank.

He agrees that the dollar is exceptionally strong — but thinks it is more to do with the US government’s need to borrow big to finance itself and service its huge debt pile, rather than its global status as a reserve currency.

Mark Sobel, OMFIF Chair, former Treasury Official: “And Myron talks about the dollar’s reserve currency status, but he doesn’t really talk about the need to uh get our fiscal house in order.

And then the Myron article kind of implies that the dollar’s global role is bad for America.

Now in Europe they always talk about the dollar’s exorbitant privilege . . . But uh Myron implies that there is an exorbitant burden.

I don’t think it’s either of those things: I think it’s a net plus.”

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The US has a massive federal debt burden and it’s getting bigger the US government spends a lot more money than it takes in through taxes and other revenue — and borrows heavily to meet its obligations which can push up the value of the dollar.

Since the CO 19 pandemic, annual deficits have swelled — and they’re projected to remain at around $1.5 trillion annually for the next few years.

Myron also talks a lot about trade deficits — something Trump and his team say the tariffs directly target.

Someone who agrees on trade deficits is Richard Koo currently the chief economist at Namura Research Institute in Japan he has advised several Japanese prime ministers and worked with the Federal Reserve Bank of New York in the 1980s, just before the Plaza Accords were agreed.

Richard Koo, Namura Research Institute: “For a very long time, this trade deficit caused largely by the strong dollar was left unattended — And it was Trump’s genius to find out that there was so many unhappy people there.

And once he start talking about protectionism you know suddenly he began to attract huge number of support.

Some countries export a lot more than they import, and vice versa. Those who export more have trade surpluses. China has the biggest in 2023 it had a surplus of just under 400 billion.

Some of its Asian counterparts such as Japan, India and the Philippines have trade deficits. But no one’s trade deficits rivals that of the US; it had a deficit of just shy of $800 billion in 2023.

And the US has been running trade deficits for decades. Since the year 2000 its trade deficit has routinely been $400 billion or more per year; in the last few years it’s been just under $1 trillion.

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Richard Koo believes decades of trade deficits have severely hurt Americans; his research group has tried to calculate the cost — and they came up with a huge figure.

Richard Koo, Namura Research Institute: “When you calculate GDP, you add trade surplus: dollar for dollar. You subtract trade deficit: dollar for dollar.

The amount of GDP Americans lost as a result of this 40 some years of trade deficit was over 153% of GDP — in equivalent to dollars that’s $41 trillion.

He thinks these costly deficits are a direct consequence of the strong dollar.

Richard Koo, Namura Research Institute: “It was the strength of the dollar which created this massive trade deficits for such a long time. And because government did nothing about it we ended up having this very protectionist president at the top to protect American workers and the industry.

So it’s in that sense that I would argue that the dollar was too strong for too long.

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But there are many who question how the Trump administration has framed the issue of trade deficits, and how they relate to the dollar.

One is Steven Myron’s predecessor as chair of the Council of Economic Advisers under the presidency of Joe Biden: that’s Jared Bernstein who served in the role from June 2023 to January 2025.

Jared Bernstein, Council of Economic Advisers: “You don’t necessarily see the trade deficits move in lock step with a strong dollar: we’ve had periods with a strong US economy leading to a strong dollar, high trade deficits, and really low unemployment.

So all of those folks, all of those characters in that play can show up together.”

And there’s the view that Trump’s obsession with trade deficits obscures wider economic contexts.

Mark Sobel, OMFIF US Chair, former Treasury Official: “Trump is very obsessed with trade bounces and the US trade deficit. And he believes that foreign countries are ripping us off, and we should have uh a balanced position.

And part of getting there uh involves a lower dollar.”

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Central to Trump’s rhetoric on trade and to Myron’s ideas is a pledge to restore American manufacturing to apparent former glories.

Donald Trump, US President: “American steel workers, auto workers, farmers and skilled craftsmen — we have a lot of them here with us today — they really suffered gravely they watched in anguish as foreign leaders have stolen our jobs foreign cheaters have ransacked our factories and foreign scavengers have torn apart our once beautiful American dream.”

It’s a view that’s resonated with many US voters one person who shares President Trump’s views on manufacturing is Judy Shelton. She was an economic advisor for Trump in his first term in office.

Judy Shelton, Economic Adviser: “Whole sections of the country who were dependent on industrial production and manufacturing particularly our auto industry those regions of the country have been hollowed out as factories closed.

And there really wasn’t much sympathy for those workers it was almost sort of a callous well: ‘Why don’t you learn computer coding? Why don’t you build wind farms?’

It was a little bit of a — I won’t say cruel but let’s say — negligent approach. And as it turns out those workers um ended up voting for Trump.”

Richard Koo, Nomura Research Institute: “Because Americans used to produce lots of televisions, cars, household appliances, stereo sets, all sorts of things . . . but if what they produce cannot be sold at the competitive prices that the Japanese or Germans are coming in?

Then even if they have the capacity to produce it they won’t be able to sell it and I think that’s how it all happened over these years.

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But there is another view: Jared Bernstein has sympathy for the argument that free trade has hurt workers in the US and elsewhere, but he says Trump’s policies will not restore US manufacturing.

Jared Bernstein, Council of Economic Advisers: “The Trump tariffs are being sold to the American public as paying now in terms of higher prices, higher costs on our imports uh and gain later in terms of reindustrializing America, bringing manufacturing back.

And there are many reasons why I believe that’s a false promise why that won’t work.”

He says developed countries such as Germany which have trade surpluses have also suffered de-industrialization. And it’s true: while manufacturing has declined as a share of total employment in the US that’s a common story across the developed world.

In fact the US current rate of manufacturing employment as a share of total employment at or just below 10% puts it in roughly the same position as many countries in Europe, South America or Asia.

However China which still has close to one-third of total employment in manufacturing has the highest share in the world.

Jared Bernstein, Council of Economic Advisers: “Look at countries that have very different levels of trade deficits, and as economies advance they tend to move from manufacturing to services and that’s fine; that’s not a bad thing.

But re-industrialization doesn’t look to us like a plausible scenario at the end of it so instead of being pain now gain later it looks to us like paying now, paying later.”

Yet while many agree that a return to the manufacturing base of old is unrealistic, there is a view that dollar devaluation is still needed to restore a sense of balance around trade.

Richard Koo, Nomura Research Institute: “I don’t think we’ll ever get back to the world we had in the 1970s.

But what we have to do with the exchange rate adjustment is to reduce the number of people in the United States who consider themselves losers of free trade.

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That brings us back to the beginning and to a major part of Myron’s argument that the dollar’s reserve currency status keeps its value too high relative to other currencies. That role does come at a certain cost to the US as Mark Sobel explains.

Mark Sobel, former US Treasury Official: “If country X has dollar reserves, they’re they’re getting interest payments on that, right?

And that sum adds to pressure on our capital markets it adds to the US interest bill which is very high.”

But it also brings significant advantages from lower borrowing costs for the US government to reduced foreign exchange risks to support for the US financial system.

Mark Sobel, former Treasury Official: “The reason the dollar one of the reasons the dollar is the world’s reserve currency is the openness and liquidity and depth of our capital markets: people can bring their money here they can bring their money out — no problems — and they know they’ll be protected by good rule of law.”

One of Myron’s proposals is to have foreign bond holders (that means investors who loan the US money and then hold bonds issued by the US government) to convert short-term high-interest bonds into long-term bonds that the US won’t have to pay much on.

Mark Sobel, former Treasury Official: “So that would reduce the financing pressures now uh of our interest bill and that would help our fiscal situation. But again, why would an investor do that?”

Richard Koo, Nomura Research Institute: “Well this Mar-a-Largo argument also have this notion that other countries have to hold zero coupon, US treasuries or something, that part I don’t think will fly under any circumstances, because each country do have their own sovereignty right they don’t they cannot be forced to hold these things.”

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But Judy Shelton and Richard Koo do believe that a Plaza Accord-style of restructuring global exchange rates should happen, and that it could limit Trump’s desire for tariffs.

Richard Koo, Nomura Research Institute: “Why don’t we consider this option: maybe we can use the tariffs as some sort of a kind of a dealmaking tool to get people to come in and actually sit down about and try to do something about this.

But the final solution for US trade deficit problem has to be the dollar correction.

Judy Shelton, Economic Adviser: “We need to talk about free trade in the context of of a rules-based approach, And we have in currency markets a free-for-all and I think that the trade relationships are a reflection of that because certainly look you don’t have to call it currency manipulation; let’s just call it um no fault currency shifts.

Nevertheless it has negative consequences for the country that suffers through no fault of their own.”

In fact Judy Shelton might have been one of the first people to actually come up with the idea of a currency pow-wow at Mar-a-Largo.

Writing for the Financial Times back in 2016, she raised the idea of Trump bringing back the gold standard writing “No one anticipates that a Bretonwood-style conference will soon take place at Mar-a-Largo, the exclusive Trump resort in Florida. Still as Mr trump often urges it’s time to start thinking big once again.”

Judy Shelton, Economic Adviser: “I might have been among the first to say if we have such a conference in the future or an effort to have a stable international monetary foundation to carry out the logic of free trade, in that Adam Smith sense of comparative advantage,if it takes place at Mar-a-Largo great.”

But Jared Bernstein says the famous summits of the past had very different contexts to the world of 2025, namely a spirit of cooperation and mutual concern.

Jared Bernstein, Council of Economic Advisers: “For that to happen I mean accord means getting together and agreeing which is actually what happened at the Plaza Hotel: getting together with other countries cooperating and agreeing.

Have you seen President Trump in action on the global stage? Does he seem like an accord guy to you? And the answer to that if you’ve been paying attention should be no, so that’s why I don’t really believe that there’s going to be anything like that happening.”

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Then there is the key question of central banks independence from their governments and their desire to pursue their own currencies’ interests.

Mark Sobel, former Treasury Official: “The ECB, the Federal Reserve are independent, they target inflation, not exchange rates. The major financial authorities are free floaters: they don’t really believe intervention has a lasting impact.

Another issue is that countries cyclical positions vary . . . . and countries are going to pursue their own self-interests.”

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As with many issues in the Trump era, polarization has come to define economic debates.

But those who agree with the Mar-a-Largo accord idea or with Trump’s agenda in general believe their serious proposals.

Judy Shelton, Economic Adviser: “If everyone approaches it by taking a breath and saying, ‘Let’s have an ethical and orderly international trading system based on a stable monetary order,’ these these could be worthy objectives and uh perhaps even in entice some of our trade partners into the same pursuit.

Richard Koo, Nomura Research Institute: “I have spoken to many currency officials in China, Japan and elsewhere, and they all agree that this is the great idea.

The question is who’s going to be the leader to do it?”

But those who disagree say the issue is not just wrongheaded it’s economic make-believe and fantasy.

Jared Bernstein, Council of Economic Advisers: “There is no Mara Lago Accord, okay it’s like the Loch Ness monster: people talk about it a lot but no one’s ever seen it in terms of really policy implementation.”

And then there’s a view that there’s simply no plan, that talk of accords and grand projects is just a way to make sense of something fundamentally lacking.

Jared Bernstein, Council of Economic Advisers: “There’s a thing that people sometimes do especially sort of complex thinkers and economists that that they look at an administration like the Trump folks and they try to make sense out of it; they try to make it fit into something sensible and rational.

It’s almost a defense mechanism — and frankly I kind of understand that on a psychological level. I wouldn’t go there with this team: it’s very chaotic; it’s very transactional: it’s on today, off tomorrow.

So don’t try to impose coherence on this agenda.”

Coherent or not the agenda rolls on.

And while many disagree with Trump vehemently, they recognize that much of his success has roots in economic discontent.

Yet finding common cause to solve these problems in an era of division, ranker, and name calling that remains elusive.

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Questions

 

Money, Cash. : “My fellow Americans this is Liberation Day.” Was Donald Trump referring to the Allied landing on Normandy, France during World War Two, or when the US signed the Declaration of Independence?

Finance, Banking. What has been the reaction of businesses, consumers, traders? Has it been positive, negative, neutral, both, neither, in-between?

Trade, Exchange. “So is there a philosophy behind the chaos, or is it simply — chaos?” What does this mean? What is the reporter talking about? Do experts believe Trump really wants to impose massive tariffs on imports?

Industry, Manufacturing, Factory. Talk about the Brenton Woods Summit toward the end of the Second World War. What did it achieve or result in? Describe the Plaza Accord in New York City. Did they reach an agreement?

Logistics, Supply Chain. The flow of trade has everything to do with the quality of products. Is this right or wrong?

Savings, Deposits. What is the status of the US dollar? It this good, bad, both, neither, in the middle, it depends.

Stocks, Bonds, Shares. Does the US have a balanced trade, a trade surplus or trade deficit?

Price, Cost, Value. According to Trump and Judy Shelton, has free trade been very beneficial for everyone? What was supposed to have been the solution? What does Trump want to achieve?

Supply and Demand. Richard Koo thinks the problem is that American workers are too lazy. Is this correct or incorrect? Can the US (easily) re-industrialize? Is it in America’s best interest to re-industrialize?

Stock Exchange, Stock Market. Why is the US dollar the world’s reserve currency? What solution has Judy Shelton proposed?
 
 
 
Workers, Employees. What does your region or country export? What does it import?

Multinational Corporation. What is the status of the local currency stable? Is there inflation, deflation or stable?

Gold, Silver, Platinum. Are there any financial, economic, or political issues?

Freight, Shipping. What might happen in the future?

Freight, Shipping. What could or should the government, businesses and people do?