Nemanja Plotan is a political economist currently serving as a Geopolitical Risk Analyst at the Vienna office of the GEA Group, a global technology supplier in the food processing industry.
The period of globalization that has been shaping the global economy ever since the end of World War II has come to an end. Globalization is understood as the growing interdependence of economies, cultures, and populations, accomplished through cross-border trade in goods and services, technology, as well as the unrestricted movement of capital, people, and information. Although it is undeniable that globalization, and especially free trade, have increased the prosperity of most economies and lifted millions out of poverty, the latter remains a double-edged sword in the eyes of U.S. President Donald Trump—and the United States is currently bleeding because of it.
Industrialized, export-driven nations like Germany and China have leveraged free trade to strengthen their economies, while highly capitalized consumer economies like the United States and the United Kingdom have experienced deindustrialization and trade deficits. In 2024, the U.S. posted a trade deficit of over $1 trillion; in other words, the total value of imported goods exceeded that of exported goods by $1 trillion. This was the fourth consecutive year the U.S. generated a trillion-dollar trade deficit.
These economic consequences have clearly influenced Trump’s economic policies, which focus on tariffs, subsidies, and reshoring manufacturing to address the impact of the trade deficit. His administration has consistently argued that the world has unfairly benefited from U.S. capital markets and military protection—with much of the blame being laid squarely on China, Europe, and America’s main adversary—while American industries declined. To reverse these trends and restore the status of a manufacturing superpower, Trump has altered U.S. foreign policy, changing its long-held emphasis on economic liberalism in favor of economic nationalism.
The Return to Economic Nationalism
The idea of economic nationalism has been around for centuries, taking different forms depending on the period and the country in question. At its core, economic nationalism prioritizes a nation’s economic interests over others to strengthen national power, unity, and security. Economic nationalists believe that economic autonomy and industrial strength are critical for maintaining sovereignty and shaping global influence.
The father of economic nationalism, German-American economist Friedrich List, argued that economic power was essential for national strength and that protectionist policies, such as tariffs and subsidies, were necessary to support infant industries. His ideas greatly influenced German industrial policy, helping it become a leading global power by the early twentieth century. Much like List, Alexander Hamilton, a founding father and the first U.S. Secretary of the Treasury, advocated for protective tariffs and government subsidies to foster domestic manufacturing and infrastructure. He believed that a strong industrial base was essential for national security and independence, laying the foundation for America’s early economic policies, which are believed to have propelled the United States to superpower status. It is precisely this vision of an industrialized America that shapes Trump’s worldview. In short, it is Make America Great Again by growing the U.S. economy at the expense of everyone else.
Trump’s economic nationalism in his second term has manifested through aggressive tariff policies aimed at protecting U.S. industries and reshaping global trade dynamics. His administration has enacted or threatened to impose tariffs on a number of countries including China, Canada, Mexico, the EU, and BRICS nations, with rates reaching up to a whopping 250 percent on certain goods. Trump also announced a 25 percent tariff on nations purchasing Venezuelan oil, aiming to pressure global energy markets. Industries such as steel, aluminum, automobiles, and pharmaceuticals have been targeted with tariffs. Such policies are a part of a broader strategy to reduce trade deficits, incentivize domestic production, and use tariffs as a geopolitical tool.
How to Devalue the Dollar
In a July 2024 Bloomberg interview, Trump stated that the dollar is overvalued, which poses a serious problem for the U.S. economy since it raises the price of American exports, making them less competitive on the global stage, thereby reducing the number of manufacturing jobs in the country. Despite U.S. trade deficits, the IMF has suggested that the dollar has been vastly overvalued for decades. This is attributed to the phenomenon of the dollar’s status as the world reserve currency, which has raised global demand for the dollar and U.S. Treasury bills, thereby inflating their value. In 2023, the IMF claimed that the dollar was more than 20 percent overvalued relative to key developed markets and more than 100 percent overvalued compared to leading emerging markets.
In the eyes of the Trump administration, China has overtaken the U.S. in GDP (adjusted for purchasing power parity) by purposely undervaluing its currency, which has resulted in cheap and competitive products and a strong industrial base. Hence, Trump’s goal will be to devalue the dollar to increase U.S. competitiveness in the global economy.
However, Trump’s aggressive tariff policies will lead to higher consumer prices, and as goods become more expensive and inflation inevitably rises, this will compel the Federal Reserve to respond by raising interest rates. Higher interest rates attract foreign capital seeking better returns, increasing demand for the dollar and pushing up its value, which directly contradicts Trump’s goal of a weaker dollar to boost exports.
The Federal Reserve could, in theory, devalue the dollar through monetary easing by lowering interest rates, expanding its balance sheet, or directly intervening in currency markets. However, since the Fed operates independently from the executive branch—meaning Trump cannot simply order a devaluation—he must pursue an alternative strategy, which is where the so-called Mar-a-Lago Accord (or Plaza Accord 2.0) comes in.
The Mar-a-Lago Accord is a proposed plan by an economist close to Trump, according to which the U.S. should provide security and access to its markets to the G7, the Middle East, and Latin America, and in return, these countries will sell the dollars that they have in the open market and buy their own currencies. The dollar’s supply in the market will rise, thereby depreciating its relative price and growing the size of the U.S. manufacturing sector. The proposed plan aims to mimic the Plaza Accord, which was signed in 1985 with the G5 economies of that time, which brought down the exchange rates of the dollar in a coordinated manner.
Prior to 1985, the dollar had risen to a historic high, and the U.S. Congress was on the verge of imposing protectionist measures such as tariffs, which would negatively affect other economies. Even though a high exchange rate would immediately hurt the export competitiveness of G5 countries, they had no other viable option than to accept the accord or face devastating tariffs—the same ones Trump plans to use now. Tariffs carry the benefit of raising tax revenue for the U.S. government, making them an attractive option. The second tool to achieve this is through the establishment of a sovereign wealth fund, which would likely be used to accumulate foreign currencies with the goal of intervening in FX markets and further devaluing the dollar.
The likelihood of a Mar-a-Lago Accord’s success today is much lower than that of the 1985 Plaza Accord, as the global economy has become much more complex. Even though the Plaza Accords were deemed successful, the return of the same problems 40 years later suggests that the solution did not work in the long run. Another obvious problem is that in the past, the U.S. had to negotiate within a G5 framework, whereas today it would have to negotiate within G20, which further complicates things since China is now its main trading and military opponent. Additionally, currency markets now see daily turnover that is five times greater than in 1985, making it even more complicated to achieve.
Ever since taking office, many have perceived Donald Trump as a “madman” who is destroying old alliances and destabilizing the world through tariffs. However, tariffs could easily be an attempt to collect bargaining chips that will be used later to pressure other countries to devalue the dollar in a hillbilly attempt to reindustrialize the United States. The question remains whether this will lead to the end of the dollar as the world reserve currency or if Trump holds more bargaining chips than he is currently showing—only time will tell.
