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Opinion
How China could benefit from a ‘Mar-a-Lago Accord’
Trump’s economic adviser has proposed a plan to get some countries to help devalue the US dollar. This might not be a bad option for China
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Yang Yao is Liberal Arts Chair Professor at the China Centre for Economic Research and the National School of Development at Peking University.
The provisional trade deal reached by China and the United States in Geneva last month exceeded expectations, with the two sides agreeing to roll back for 90 days most tariffs and other countermeasures they had imposed in the preceding weeks.
To be sure, a number of tariffs remain – including all those the US imposed on China during Donald Trump’s first presidency – and little progress was made in resolving underlying disagreements, such as over fentanyl flows into the US. But with more talks set to take place (amid and despite accusations by both sides that the provisional agreement has been violated), a robust agreement may well be in the offing.
To understand what such an agreement might look like, it is worth considering the grievances behind Trump’s tariff policy. Conventional economic theory holds that, in a flexible exchange-rate system, changes in a currency’s value should lead to a stable trade balance in the issuing economy. But, as experience shows, a number of factors can disrupt this dynamic. In the case of the dollar, it is very easy to pin down the main one: its status as the world’s dominant reserve currency.
As the economist Robert Triffin explained in 1960, unless the country that provides the world’s reserve currency runs a current account deficit, the world loses its largest source of liquidity for reserves, with catastrophic consequences for economic growth and stability. But the ever-expanding deficit can undermine confidence in the reserve-issuing country – what is known as the Triffin dilemma.
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