Proposals for a Mar-a-Lago International Monetary Accord: Fantasy or Tragedy?

While so far, the focus of Mr. Trump’s international economic policies has been on trade policy a number of his advisers have made proposals that would dramatically affect the operation of the international monetary system. These are often referred to as the Mar-a-Lago proposals named after Mr. Trump’s Florida home. This paper offers critiques of these proposals and argues that many of them are based on fantasies and implementing many of them would end in tragedies for the United States as well as the rest of the world. The proposals are frequently based on fallacies including that trade deficits are always bad, that the role of the dollar has made a major rather than minor contribution to the US trade deficits and that tariffs and exchange rate changes alone would be sufficient to close the trade deficit without major macroeconomic adjustments. Such arguments ignore both the Lerner Symmetry Theorem, which shows that barriers to imports will also reduce exports and the role of international capital flows in affecting the trade balance. They generally fail to note the important contributions that the huge US fiscal deficits have made to the trade deficits. Their emphasis on unilateral actions and disregard of international agreements show a distressing lack of knowledge of international monetary history and the benefits of international cooperation.