Recently, the 'Mar-a-Lago Accord' has been frequently mentioned on Wall Street and in international finance, drawing interest in its feasibility. This has coincided with the potential return of U.S. President Donald Trump to power, and his economic advisor's proposed foreign economic strategy is receiving attention. At the center of this strategy is a plan to induce a weaker dollar to resolve the U.S. twin deficits (fiscal and current account deficits).
◇ “100-year U.S. Government Bonds disappearing”... The U.S. inducing a weaker dollar
According to multiple foreign reports compiled on the 14th, sources such as The New York Times (NYT) have stated that the Trump administration is considering the 'Mar-a-Lago Accord,' a multilateral negotiation to adjust the value of the dollar. Mar-a-Lago is a resort owned by President Trump in Palm Beach, Florida, and has functioned as a hub of global politics since Trump took office, attracting VIPs from various countries.
The concept of the 'Mar-a-Lago Accord' first emerged in a report titled 'A user's guide to restructuring the global trading system,' published by Stephen Miran, Chairperson of the White House Council of Economic Advisers (CEA), in November last year.
In this report, Miran argued that allied countries should share part of the expense to address the chronic trade deficits faced by the U.S. due to a strong dollar. Specifically, he proposed that allied countries sell their short-term U.S. Government Bonds with maturities of 10 years or fewer and be induced to purchase ultra-long-term Government Bonds with maturities of 100 years. He also stipulated that the newly issued ultra-long-term Government Bonds should have interest rates close to zero.
This aims to reduce the interest burden of Government Bonds issued during high-interest periods and lower the fiscal deficit of the U.S. Increasing demand for long-term bonds to alleviate upward pressure on interest rates and to suppress the strong dollar is also one of the main goals. Miran believes that if the trade balance is restored, the size of the current account deficit will decrease, leading to improved fiscal soundness.
He also noted that in anticipation of the possibility that allied countries may not accept the U.S. proposal, tariffs and security should be leveraged in diplomatic negotiations. In particular, he claimed that the high tariffs imposed during the trade war with China in 2018-2019 increased tax revenues without triggering inflation and proposed an optimal tariff level of 20% for each country.
In the market, the Mar-a-Lago Accord is being evaluated as similar to the Plaza Accord in that it would induce a weaker dollar. The Plaza Accord was a currency adjustment agreement led by the U.S. in September 1985, with participation from Japan, West Germany, France, and the United Kingdom, in which countries sold dollars into the market and purchased their domestic currency to reduce its circulation. As a result, the values of the yen and mark appreciated by more than 50% over two years while the value of the dollar fell.
◇ “Possibility low, but if the accord is realized, it will impact the South Korean economy”
In the early days of Trump's administration, Miran's proposal was assessed to have low feasibility. This is because artificially weakening the dollar could trigger rapid capital flight, which may shock the overall economy. However, as the Trump administration has pursued strong trade pressures involving high tariffs and security, the Mar-a-Lago Accord has begun to be recognized as Trump's approach to global economic strategy.
If this accord materializes, it is expected to have a complex impact on the South Korean economy. In the short term, a stronger won could lead to lower import prices, price stability, and a stabilized financial market. Given the characteristics of the domestic manufacturing sector, which imports raw materials and exports finished goods, a stronger won may also positively impact production cost reduction.
However, many experts believe that the losses will outweigh the gains in the long term. As the Mar-a-Lago Accord is pursued alongside tariff policies, South Korean corporations may be pressured to transfer their production facilities to the U.S. This could lead to a decrease in domestic jobs and weaken exports.
Additionally, the structure of foreign exchange reserves could shift towards long-term U.S. bonds, which may reduce the asset liquidity that can be quickly converted to cash in times of crises such as sudden currency fluctuations. This is also expected to have a negative impact on the stability of the foreign exchange market.
Among experts, opinions vary regarding the likelihood of this accord's realization. Park Soo-yeon, a researcher at MERITZ Securities, noted, "During the Plaza Accord, major countries like Japan and Germany came to negotiations with strong economic strength, but currently, there are not many countries aside from the U.S. with stable economic conditions," predicting that the likelihood of the Mar-a-Lago Accord being successful is low.
On the other hand, some believe that adjusting the specific details could make realization possible. Kim Chan-hee, a researcher at Shinhan Investment Corp., stated, "Allied countries may make realistic choices comparing the burden of U.S. tariffs and the expenses related to participating in the Mar-a-Lago Accord," and suggested that it could still be pursued in a somewhat modified form through negotiations with various countries.
Park Sang-hyun, a researcher at iM Securities, remarked that "considering President Trump's unpredictability and the intention to consecutively implement policies aimed at improving fiscal balance in the second term, it is difficult to dismiss the Mar-a-Lago Accord as an unrealistic scenario," and added that "President Trump could leverage the issuance of 100-year zero-interest Government Bonds as another negotiation tool, while also urging currency appreciation pressure or strong encouragement for the purchase of U.S. Government Bonds."