1 00:00:02,560 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:09,480 --> 00:00:12,399 Speaker 2: I'm Caroline Hepkee, and this is Here's Why, where we 3 00:00:12,480 --> 00:00:15,520 Speaker 2: take one news story and explain it in just a 4 00:00:15,560 --> 00:00:20,919 Speaker 2: few minutes with our experts here at Bloomberg. Most followers 5 00:00:21,000 --> 00:00:25,239 Speaker 2: of US politics now know Mara Lago, the Summer Residents, 6 00:00:25,280 --> 00:00:29,600 Speaker 2: and bolthole of President Donald Trump. But financial markets are 7 00:00:29,600 --> 00:00:32,880 Speaker 2: starting to talk about the resort for a different reason. 8 00:00:33,159 --> 00:00:35,600 Speaker 3: It's about taking your creditors into a room for the 9 00:00:35,720 --> 00:00:38,800 Speaker 3: United States of America and actually saying you've got to 10 00:00:38,840 --> 00:00:42,879 Speaker 3: swap your treasuries for long term debt. Now, this is radical. 11 00:00:42,920 --> 00:00:45,600 Speaker 3: Nobody's saying that this is actually going to happen. 12 00:00:45,640 --> 00:00:48,159 Speaker 4: Now, why are we doing this? The idea is to 13 00:00:48,200 --> 00:00:51,479 Speaker 4: reorient to trade the world global trade system, which we 14 00:00:51,600 --> 00:00:54,280 Speaker 4: seem to be trying to do with tariffs, to bring 15 00:00:54,320 --> 00:00:57,360 Speaker 4: down the value of the dollar, to bring down interest rates, 16 00:00:57,560 --> 00:01:00,600 Speaker 4: and to make the US more competitive. That's what goal is. 17 00:01:00,680 --> 00:01:04,360 Speaker 5: I don't think anybody's really taken a really creative approach 18 00:01:04,720 --> 00:01:07,560 Speaker 5: to problem solving with regard to this debt and what 19 00:01:07,560 --> 00:01:09,680 Speaker 5: we're seeing out of the Trump administration and so many 20 00:01:09,720 --> 00:01:14,160 Speaker 5: different parts is a very creative and new thought approach. 21 00:01:13,920 --> 00:01:17,840 Speaker 2: Trump is rewiring global trade with threats of tariffs. He's 22 00:01:17,920 --> 00:01:23,000 Speaker 2: upended geopolitics, NATO, and the global security framework. Given the 23 00:01:23,040 --> 00:01:27,760 Speaker 2: presidents unconventional at high stakes maneuvers, some on Wall Street 24 00:01:27,800 --> 00:01:32,080 Speaker 2: are wondering if the international financial system may be next. 25 00:01:32,600 --> 00:01:35,920 Speaker 2: The concept of deliberately weakening the US dollar to help 26 00:01:35,959 --> 00:01:39,679 Speaker 2: the American economy is causing a stir in the markets. 27 00:01:40,160 --> 00:01:43,760 Speaker 2: So here's why the idea of a Mara Largo accord 28 00:01:44,040 --> 00:01:49,920 Speaker 2: has everyone's attention. Our global economy correspondent Endacuren joins US 29 00:01:49,920 --> 00:01:54,600 Speaker 2: now to explain, Hi, Ender, what is this phrase Mara 30 00:01:54,760 --> 00:01:57,480 Speaker 2: Lago accord and where is it come from? 31 00:01:57,840 --> 00:02:01,360 Speaker 1: At its core, it's all about how President Donald Trump 32 00:02:01,400 --> 00:02:04,000 Speaker 1: wants to shake up the way the US trades with 33 00:02:04,520 --> 00:02:06,720 Speaker 1: the rest of the world, and at the core of 34 00:02:06,720 --> 00:02:10,240 Speaker 1: that is the US dollar as America's currency, and that's 35 00:02:10,320 --> 00:02:13,200 Speaker 1: driving speculation that perhaps President Trump will look for some 36 00:02:13,320 --> 00:02:17,400 Speaker 1: kind of a grand multinational bargain that would effectively end 37 00:02:17,480 --> 00:02:21,120 Speaker 1: with a weaker US dollar that would help US exporters 38 00:02:21,120 --> 00:02:24,400 Speaker 1: style produce around the rest of the world. And the 39 00:02:24,520 --> 00:02:26,919 Speaker 1: name that some analysts are calling it is they'redubbing it 40 00:02:27,000 --> 00:02:31,240 Speaker 1: the Marri Lago accord. After Trump's private club in Palm Beach, Florida. 41 00:02:31,280 --> 00:02:33,960 Speaker 1: As I say, this is all early days and it's speculation, 42 00:02:34,320 --> 00:02:36,720 Speaker 1: but the thinking is that at some point President Trump 43 00:02:36,720 --> 00:02:38,960 Speaker 1: will turn his attention towards the currency and look for 44 00:02:39,000 --> 00:02:40,520 Speaker 1: some kind of a big deal on that front. 45 00:02:40,760 --> 00:02:44,520 Speaker 2: Okay, So that's on weakening the dollar. What could this 46 00:02:44,840 --> 00:02:49,200 Speaker 2: possible concept agreement attempt to accomplish beyond that? 47 00:02:49,880 --> 00:02:53,840 Speaker 1: So here's the thing. The US trade deficit has blown 48 00:02:53,880 --> 00:02:56,600 Speaker 1: out hit a record one point two trillion dollars in 49 00:02:56,600 --> 00:02:59,760 Speaker 1: twenty twenty four. President Trump is not happy with that. 50 00:03:00,080 --> 00:03:04,080 Speaker 1: He sees that as Americas sending money abroad. Part of 51 00:03:04,120 --> 00:03:07,079 Speaker 1: the story here is that the dollar is historically strong 52 00:03:07,480 --> 00:03:11,640 Speaker 1: that undermines US competitiveness by making imports cheaper and of 53 00:03:11,639 --> 00:03:15,320 Speaker 1: course at the cost of their own exporters. And in fact, 54 00:03:15,360 --> 00:03:17,680 Speaker 1: some analysts in the currency market look at the dollar 55 00:03:17,720 --> 00:03:21,040 Speaker 1: today as being overvalued when you say base it on 56 00:03:21,520 --> 00:03:24,720 Speaker 1: a domestic purchasing power of a currency. Now, when you 57 00:03:24,760 --> 00:03:27,880 Speaker 1: consider all of that, the thinking is that President Trump 58 00:03:27,960 --> 00:03:30,360 Speaker 1: might at some point get his advisors together and say, 59 00:03:30,680 --> 00:03:34,720 Speaker 1: how could we meaningfully weaken the dollar to help our exporters. 60 00:03:34,880 --> 00:03:36,560 Speaker 1: And that's where you get into the mechanics of how 61 00:03:36,600 --> 00:03:37,160 Speaker 1: this might work. 62 00:03:37,440 --> 00:03:40,400 Speaker 2: Indeed, how could a Marl Largo agreement work? 63 00:03:41,000 --> 00:03:43,920 Speaker 1: So there are different ways of approaching it. One simple 64 00:03:44,000 --> 00:03:46,880 Speaker 1: way would be that America would reach an agreement with 65 00:03:47,280 --> 00:03:51,160 Speaker 1: key trading partners, asking those trading partners to boost domestic 66 00:03:51,160 --> 00:03:55,080 Speaker 1: consumption of their own goods that they produce rather than 67 00:03:55,440 --> 00:03:58,840 Speaker 1: sell their goods overseas at a cheaper price into America. 68 00:03:59,080 --> 00:04:02,640 Speaker 1: That would reduce their manufacturers or alliance on exporting TODs 69 00:04:02,640 --> 00:04:05,760 Speaker 1: for example. And one case in point there, of course, 70 00:04:05,800 --> 00:04:08,480 Speaker 1: would be China. It's a focus for its exports and 71 00:04:08,600 --> 00:04:11,560 Speaker 1: huge manufacturing base and the fact that it's able to 72 00:04:11,800 --> 00:04:15,440 Speaker 1: export at a competitive price compared to with the US counterparts. 73 00:04:15,560 --> 00:04:18,240 Speaker 1: So the thinking is, look, you foreign trading partners, buy 74 00:04:18,279 --> 00:04:20,320 Speaker 1: more of your own stuff for adam seller to US. 75 00:04:20,520 --> 00:04:22,760 Speaker 1: That's one way to rebalance it. Another way, of course, 76 00:04:22,800 --> 00:04:24,880 Speaker 1: could be to intervene in the foreign exchange of market. 77 00:04:25,080 --> 00:04:29,040 Speaker 1: Get your trading partners to agree on either buying their 78 00:04:29,080 --> 00:04:31,680 Speaker 1: own currency to make it stronger, selling the dollar to 79 00:04:31,720 --> 00:04:33,840 Speaker 1: help weaken the dollar. But you know, the foreign exchange 80 00:04:33,920 --> 00:04:36,640 Speaker 1: market is worth around seven point five trillion, so it 81 00:04:36,680 --> 00:04:39,480 Speaker 1: would take a lot of buying and spending of currencies 82 00:04:39,520 --> 00:04:41,360 Speaker 1: to really make adent in that. And then there are 83 00:04:41,360 --> 00:04:44,919 Speaker 1: some other leavers and tools that governments could pull, But 84 00:04:45,600 --> 00:04:48,400 Speaker 1: you know, it all comes down to what levers could 85 00:04:48,400 --> 00:04:50,760 Speaker 1: they agree on that would effectively weaken the uslar and 86 00:04:50,800 --> 00:04:52,200 Speaker 1: strengthen their own currencies. 87 00:04:52,640 --> 00:04:55,719 Speaker 2: Have similar accords been agreed before? 88 00:04:56,279 --> 00:04:58,479 Speaker 1: Yes, In nineteen eighty five we had what was called 89 00:04:58,480 --> 00:05:00,760 Speaker 1: the Plaza Accord that was named after the hotel in 90 00:05:00,839 --> 00:05:03,640 Speaker 1: New York where officials met, and it was a broadly 91 00:05:04,000 --> 00:05:07,800 Speaker 1: similar backdrop and idea. The story back then was high inflation, 92 00:05:08,240 --> 00:05:11,000 Speaker 1: high interest rates, and a strong dollar, so the US 93 00:05:11,040 --> 00:05:13,720 Speaker 1: needed an agreement with At that time it was France, Japan, 94 00:05:14,000 --> 00:05:17,640 Speaker 1: UK and then West Germany that they would allow their 95 00:05:17,680 --> 00:05:21,040 Speaker 1: currencies to strengthen against the dollar and allowed the dollar 96 00:05:21,040 --> 00:05:22,680 Speaker 1: to a weekend, because the thinking was back then that 97 00:05:22,720 --> 00:05:27,920 Speaker 1: the strong greenback was hurting the global economy. Now, of course, 98 00:05:28,320 --> 00:05:31,880 Speaker 1: back then the central casting villain, so to speak, was 99 00:05:31,960 --> 00:05:35,599 Speaker 1: Japan because they were dominating the manufacturing and export market. 100 00:05:35,839 --> 00:05:39,360 Speaker 1: They were sparking protections and backlash from US lawmakers in 101 00:05:39,760 --> 00:05:42,680 Speaker 1: a way that Chinese today. So Japan came on and 102 00:05:42,720 --> 00:05:46,000 Speaker 1: signed on to that agreement. Though that deal was later 103 00:05:46,040 --> 00:05:48,800 Speaker 1: blamed in part for some of Japan's own economic demise. 104 00:05:49,760 --> 00:05:52,560 Speaker 2: What did different investors think about this idea? 105 00:05:53,279 --> 00:05:55,360 Speaker 1: There are a couple of ways of thinking about it. 106 00:05:55,560 --> 00:05:59,200 Speaker 1: On the one hand, it's still very early. Investors say 107 00:05:59,560 --> 00:06:03,000 Speaker 1: a lot of this is speculation. To be clear, President 108 00:06:03,040 --> 00:06:06,360 Speaker 1: Trump and his officials do talk about the need for 109 00:06:06,440 --> 00:06:09,520 Speaker 1: a strong continuing the strong dollar policy of the US, 110 00:06:09,520 --> 00:06:13,040 Speaker 1: for example. On the other hand, though the same investors 111 00:06:13,080 --> 00:06:16,039 Speaker 1: will say, you know, President Trump is serious about shaking 112 00:06:16,160 --> 00:06:18,440 Speaker 1: up the way the US is doing business with key 113 00:06:18,520 --> 00:06:21,560 Speaker 1: trading partners. He's already proven to be unconventional with some 114 00:06:21,640 --> 00:06:25,640 Speaker 1: of his policy decisions and announcements. His Treasury Secretary Scott 115 00:06:25,680 --> 00:06:28,600 Speaker 1: Besant has before he took office, spoken of the need 116 00:06:28,640 --> 00:06:33,080 Speaker 1: for some kind of a grand economic reordering. So at 117 00:06:33,080 --> 00:06:35,960 Speaker 1: the very least, the idea that Trump and his officials 118 00:06:35,960 --> 00:06:38,320 Speaker 1: won't be thinking about what they could do around a 119 00:06:38,360 --> 00:06:43,400 Speaker 1: strong dollar doesn't sound completely implausible. But that's where, you know, 120 00:06:43,400 --> 00:06:45,039 Speaker 1: the rubber hits the road when it comes down to 121 00:06:45,160 --> 00:06:48,440 Speaker 1: what exact levers can the US pull, How effective would 122 00:06:48,480 --> 00:06:50,880 Speaker 1: it be, How realistic is it that they could agree 123 00:06:50,880 --> 00:06:54,440 Speaker 1: in accord with trading partners, and indeed trading rivals to 124 00:06:54,600 --> 00:06:56,760 Speaker 1: allow a dollar a week and in their currency strengthen. 125 00:06:57,120 --> 00:07:00,760 Speaker 1: On paper it sounds duable, but in practice be very difficult. 126 00:07:00,800 --> 00:07:01,960 Speaker 1: One to get across the line. 127 00:07:02,560 --> 00:07:05,880 Speaker 2: There's another market that could be affected, the US treasury market, 128 00:07:05,960 --> 00:07:10,880 Speaker 2: the debt market. What would be the consequences of restructuring that. 129 00:07:11,720 --> 00:07:13,560 Speaker 1: So one of the ideas could be that the US 130 00:07:13,640 --> 00:07:17,160 Speaker 1: government could issue government bonds that don't pay interests, so 131 00:07:17,320 --> 00:07:20,920 Speaker 1: called zero coupon, and they mature in one hundred years. 132 00:07:21,920 --> 00:07:24,800 Speaker 1: Some people out there, for example, former Credit Swiel analyst 133 00:07:24,840 --> 00:07:27,560 Speaker 1: Sultan Pozner, is one of those who've made the suggestion 134 00:07:27,640 --> 00:07:29,640 Speaker 1: of maybe an agreement when the US and its military 135 00:07:29,680 --> 00:07:33,320 Speaker 1: partners whereby in return for a security guarantee, allies are 136 00:07:33,360 --> 00:07:35,880 Speaker 1: required by these zero centry bonds. And what would that do? 137 00:07:36,200 --> 00:07:39,480 Speaker 1: It would take pressure off the US repayment schedule, take 138 00:07:39,520 --> 00:07:43,280 Speaker 1: pressure off the US integrate profile industrate burden, which of 139 00:07:43,320 --> 00:07:46,600 Speaker 1: course is one of the key expense out lays for 140 00:07:46,640 --> 00:07:49,360 Speaker 1: the government right now, and it could be bundled up 141 00:07:49,360 --> 00:07:51,720 Speaker 1: as part of his whole grand package of a Mari 142 00:07:51,800 --> 00:07:53,920 Speaker 1: Largo record. As I say, you know, these are all 143 00:07:53,960 --> 00:07:56,480 Speaker 1: talking points, these are what Alas say could be done. 144 00:07:56,760 --> 00:07:58,880 Speaker 1: But getting all of these agreed, it seems to be 145 00:07:59,080 --> 00:08:00,800 Speaker 1: I think, a way of just yet, So. 146 00:08:00,800 --> 00:08:04,320 Speaker 2: What are the downsides to this agreement, if any, and 147 00:08:04,360 --> 00:08:05,880 Speaker 2: who would have to deal with them. 148 00:08:06,160 --> 00:08:08,560 Speaker 1: So when we had the Plows Accord back in nineteen 149 00:08:08,640 --> 00:08:11,040 Speaker 1: eighty five, it sounded like a good idea at the time, 150 00:08:11,320 --> 00:08:16,000 Speaker 1: and Japan signed on, but ultimately they blamed it for 151 00:08:16,040 --> 00:08:19,160 Speaker 1: allowing the end to become too strong, and that played 152 00:08:19,160 --> 00:08:21,400 Speaker 1: a role in Japan's own economic demise, and in fact 153 00:08:21,440 --> 00:08:23,480 Speaker 1: they had to follow up with another agreement, the Lure 154 00:08:23,520 --> 00:08:25,960 Speaker 1: of Accord, in nineteen eighty seven, to try and draw 155 00:08:26,000 --> 00:08:29,280 Speaker 1: a line under that. So there's history that these accords 156 00:08:29,280 --> 00:08:32,559 Speaker 1: don't necessarily work according to plan. And then more practically, 157 00:08:32,920 --> 00:08:35,200 Speaker 1: for American consumers under one hand, right now they have 158 00:08:35,200 --> 00:08:37,720 Speaker 1: a strong currency that means they can buy products from 159 00:08:37,760 --> 00:08:40,880 Speaker 1: around the world at a competitive price, and of course 160 00:08:40,880 --> 00:08:43,280 Speaker 1: when they travel and go overseas, it's a good time 161 00:08:43,320 --> 00:08:46,280 Speaker 1: to go on holidays. A weaker currency means they're going 162 00:08:46,320 --> 00:08:49,960 Speaker 1: to be importing higher prices. That means, of course, potentially 163 00:08:50,080 --> 00:08:53,440 Speaker 1: higher inflation, and that will erode their purchasing power. And 164 00:08:53,520 --> 00:08:55,160 Speaker 1: if we did get to a point where the dollar 165 00:08:55,200 --> 00:08:57,640 Speaker 1: was weakening, sharply, it might lose some of its appeal. 166 00:08:57,720 --> 00:09:01,240 Speaker 1: For foreign investors who don't like volati, they like strength 167 00:09:01,320 --> 00:09:03,840 Speaker 1: and strong currencies, they like stability, they might look at 168 00:09:03,840 --> 00:09:07,640 Speaker 1: maybe alternative assets, maybe the Euro, maybe elsewhere. That's if 169 00:09:07,640 --> 00:09:10,080 Speaker 1: the US dollar was to get into a weakening spiral. 170 00:09:10,400 --> 00:09:12,200 Speaker 1: Those are some of the downsides that could come out 171 00:09:12,240 --> 00:09:13,080 Speaker 1: of an agreement like this. 172 00:09:13,520 --> 00:09:17,320 Speaker 2: Thanks to our Global Economy correspondent and a current for 173 00:09:17,440 --> 00:09:20,880 Speaker 2: more explanations like this from our team of three thousand 174 00:09:20,920 --> 00:09:24,160 Speaker 2: journalists and alys around the world, search for Quick Take 175 00:09:24,440 --> 00:09:29,600 Speaker 2: on the Bloomberg website or Bloomberg Business app. I'm Caroline Hepga. 176 00:09:29,840 --> 00:09:33,160 Speaker 2: This is his why. We'll be back next week with more. 177 00:09:33,280 --> 00:09:34,160 Speaker 2: Thanks for listening.