Summary
Following fresh tariffs, Trump may escalate pressure on allies by leveraging America’s financial dominance.
Options include restricting dollar access via Fed swap lines or pressuring payment giants like Visa and Mastercard, risking disruptions in Europe.
Trump’s advisers suggest a “Mar-a-Lago accord” to force currency revaluations, echoing the 1985 Plaza Accord, though economists doubt its feasibility.
Such moves could strain global markets, weaken trust in the dollar, and provoke retaliation. European leaders are considering countermeasures, fearing economic coercion and financial instability.
Ironically, this would largely achieve Trump’s goal of lowering America’s trade deficits. A big reason why America runs such deep deficits is because the strength of the dollar makes it less attractive to buy from the US, but the dollar never weakens because it’s the global reserve.
Of course, when OPEC discussed moving away from the dollar Trump lost his shit, so it’s not like this is his actual plan. There’s no 5D chess here, they’re all idiots. Nor would intentionally devaluing the dollar to increase US exports be a smart idea, but it is something that has been seriously proposed by one of Trump’s economic advisors.
Rumour goes the idea is to force others to peg their currency to the dollar in fixed exchange rates so they can stay the reserve currency and still re-industrialize. Tariffs are used to force others into that arrangement. With how trustworthy USA has been the last few months, countries are not going to be enthousiast about this.
I’ve heard a few different theories about big plays that might be the intent here, and they all fall down on that same basic problem; The US, doesn’t have the reliability or the leverage to make it work. That’s not saying that the theories are bad - they’re all plausible enough - just that no matter what the White House thinks their play is here, it won’t work because no one has enough incentive to play nice with them. The US no longer has the economic dominance needed to force these kinds of changes, and they’re too unreliable a partner for anyone to willingly enter a a long term arrangement with them.
But then I suppose none of this is surprising when you look at Trump’s business dealings. He’s never understood any way of operating other than being an unreliable partner and screwing everyone around you, and it’s why his businesses all failed. He’s never understood the value in being a reliable partner.