In September 1985, eight months into Ronald Reagan's second term as America's 40th president, finance ministers and central bankers from the U.S., Britain, France, Japan, and West Germany gathered at the Plaza Hotel in New York. They aimed to decrease the value of the dollar, which had surged by nearly 50% on a trade-weighted basis between 1980 and Reagan's second inauguration. Other nations had expressed concerns as America's trade deficit had ballooned. After the group declared that "an orderly appreciation of the non-dollar currencies is desirable" and committed to "closer cooperation to encourage this," the dollar dropped sharply. By the late 1980s, it had returned to its 1980 levels.

 

Despite the apparent success of the "Plaza Accords," currency intervention fell out of favor. Controlling monetary policy to keep inflation low took priority. It is impractical for a country to have an independent monetary policy, an open capital account, and a fixed exchange rate simultaneously; even attempting to influence two out of the three is difficult. Currency markets are vast, deep, and liquid. Time and again, foreign-exchange traders have outmaneuvered policymakers trying to manipulate the market in either direction.

 

Nonetheless, a second Trump administration might still attempt it. Donald Trump favors strong entities—strongmen, strong borders, strong China policy—but not a strong currency. "One would think that I would be thrilled with our very strong dollar," he said in 2019, "I am not!" He argued that it undermined American industry. He is joined in this view by J.D. Vance, his new running mate. "When I look at the American economy...I see our mass consumption of mostly useless imports on one hand and our hollowed-out industrial base on the other hand," Vance remarked at a Senate hearing last year, before questioning Jerome Powell, chair of the Federal Reserve, about the downsides of having the world's reserve currency.

 

What strategies could a Trump-Vance White House adopt to weaken the dollar? A repeat of the Plaza Accords—perhaps at the Trump International Hotel across Central Park—seems unlikely. The original agreement was partly an alternative to imposing tariffs or other trade-protection measures on allies, which Congress desired. America's trading partners are now far more varied, numerous, and hostile than in the 1980s. Fewer would be willing to assist America this time around.

 

Made in China

 

The Treasury could instead act independently by selling dollars to buy foreign currency. However, this could be costly. From 2014 to 2017, China, which has robust capital controls and a thinner foreign-exchange market, spent $1 trillion annually—3% of its GDP—trying to support its currency's value. The U.S. is currently running a large budget deficit. Borrowing vast sums to buy foreign currency might not be appealing, especially if funds are limited by the debt ceiling and could otherwise finance tax cuts.

 

Trump and Vance might try to pressure the Fed into action. Trump has never prioritized independent monetary policy. During his first term, he often used social media to criticize Powell for being slow to cut interest rates, accusing him of having "no guts, no sense, no vision." If the central bank could be nudged into printing dollars or lowering rates, it would likely help devalue the dollar. Yet Powell is unlikely to be coerced, partly because it would almost certainly result in inflation, which he is mandated to keep low and stable. Firing Powell and replacing him with a more compliant chairman might not be legal.

 

The only other option would be implementing some form of capital control. Implementing the kind of restrictions that China has is unthinkable for America, but the country could slightly limit capital flows, for instance, by imposing a tax on foreign purchases of American financial assets. This idea has been suggested by Robert Lighthizer, Trump's trade representative during his first term, as a means to reduce the trade deficit. However, this might have negative consequences, such as increasing government-bond yields or reducing stock prices. Given that Trump likes issuing government debt and takes pride in a strong stock market, this could deter him.

 

If a second Trump administration does nothing, it might even get lucky. The jury is still out on whether the Plaza Accords truly drove down the dollar. The currency's strength in the early 1980s was encouraged by the Fed's war on inflation, which it fought with interest rates nearing 20%. By the decade's end, the battle was won, and rates had been significantly reduced. A similar situation appears to be unfolding in America now. After more than two years of tight monetary policy, inflation seems to be subsiding. Rate cuts—and subsequent currency weakness—may soon follow.