Trump’s Tariff War Escalates to Currency Battle: What’s the Ultimate Goal?

Exploring the Shift from Trade Disputes to Global Currency Agreements / AFP

Donald Trump’s administration has thrust the United States into a complex economic showdown, transitioning from a widely discussed tariff war to what analysts are now calling a potential currency war aimed at reshaping the global financial landscape. The central mystery perplexing world leaders and market experts alike is deciphering the true intentions behind Trump’s aggressive economic policies. Canadian Foreign Minister Melanie Joly recently voiced this confusion during a meeting with business executives in Toronto, lamenting, “The challenge is that we don’t know what the U.S. president wants.” Canada, caught in the crosshairs of Trump’s tariff threats, faces a cycle of 30-day tariff impositions and reprieves, while Mexico grapples with similar uncertainty. A Mexican official told Reuters, “The reasons for U.S. tariffs keep shifting, and without clarity on the problem, finding a solution becomes impossible.” Amid this fog of uncertainty, a compelling theory is gaining traction: Trump’s ultimate goal may be to leverage tariffs to force a new international currency agreement, weakening the dollar to boost U.S. competitiveness while maintaining its global dominance.

At the heart of this speculation lies a 41-page report titled “A User’s Guide to Restructuring the Global Trading System,” penned by Stephen Miran, Trump’s nominee for chairman of the White House Council of Economic Advisers and dubbed the president’s “chief economist.” Published in November 2024, the document introduces the concept of a “Mar-a-Lago Accord,” hinting at a grand strategy to overhaul global trade and currency dynamics. Miran argues that the U.S. dollar, bolstered by its status as the world’s primary reserve currency, is overvalued, placing a heavy burden on American manufacturing and producers of tradable goods. Trump echoes this sentiment, having stated on March 3, 2025, that the depreciation of the Japanese yen and Chinese yuan against the dollar creates an “unfair and disadvantageous situation” for the U.S. He emphasized that allowing other nations to continually devalue their currencies is unacceptable, signaling his intent to address currency manipulation head-on. Miran’s report proposes using tariffs as a cudgel to compel trading partners like Europe and China into accepting a currency pact reminiscent of the 1985 Plaza Accord, where major economies agreed to weaken the dollar to rebalance trade.

The dollar’s real effective exchange rate (REER), adjusted for inflation and economic conditions, provides critical context for this strategy. According to the Bank for International Settlements (BIS), the dollar’s REER stood at 112.48 in January 2025, strikingly close to the 111.02 recorded during the Plaza Accord in September 1985. For Trump, who champions the “Make America Great Again” vision of reviving U.S. manufacturing, this elevated dollar value is a hurdle, making American exports less competitive. By pushing for a weaker dollar through international agreements, Trump aims to level the playing field for U.S. producers. However, replicating the Plaza Accord in today’s global economy is fraught with challenges. Unlike 1985, when a handful of nations could dictate currency shifts, today’s interconnected markets require buy-in from emerging economies like China, Mexico, and Vietnam, key players in U.S. trade deficits. Moreover, government-led agreements alone can no longer fully control forex markets dominated by private actors, complicating Trump’s ambitions.

Adding depth to this economic chess game are the risks tied to a weaker dollar. With the U.S. still wrestling with inflationary pressures, a sharp dollar decline could spike import prices, reigniting inflation and unsettling consumers. Financial markets also face peril: the S&P 500’s 12-month forward price-to-earnings ratio (PER) sits at 21.46, well above its 30-year average of 16.8, suggesting an overheated market vulnerable to capital flight if the dollar weakens significantly. A sudden drop in dollar value, combined with rising Japanese interest rates boosting the yen, could trigger a repeat of the August 2024 global stock market crash driven by the unwinding of yen carry trades. Worse still, this scenario might catalyze a sell-off of U.S. Treasuries, driving up yields and exacerbating America’s already ballooning fiscal deficit, a vulnerability that could undermine the dollar’s status as the world’s reserve currency.

Yet, Trump remains fiercely protective of dollar dominance. He has warned the BRICS bloc (Brazil, Russia, India, China, South Africa) that any attempt to challenge the dollar with a new or unified currency would face 100% tariffs and exclusion from the U.S. market, a threat issued in late 2024. This stance underscores a dual objective: weaken the dollar tactically to aid U.S. trade while preserving its long-term hegemony. Intriguingly, the administration is exploring stablecoins as a novel tool to reinforce this dominance. David Sacks, Trump’s “crypto czar,” asserts that dollar-pegged stablecoins could bolster demand for U.S. Treasuries by trillions of dollars, reinforcing the currency’s global role. This move builds on historical mechanisms like the gold standard, petrodollar system, and SWIFT network, positioning stablecoins as the next frontier in securing dollar supremacy amid a digital financial revolution.

The stakes of Trump’s tariff-to-currency-war gambit are monumental. Success could cement U.S. economic leadership for decades, revitalizing manufacturing and curbing trade imbalances. Failure, however, risks destabilizing financial markets, eroding dollar confidence, and handing rivals like BRICS an opening to reshape the global order. As Miran’s report gains influence and Trump doubles down on his rhetoric, the world watches a high-stakes economic experiment unfold, one where tariffs are merely the opening salvo in a broader battle over currency and power. Whether this leads to a new “Mar-a-Lago Accord” or a cascade of unintended consequences remains an open question, but Trump’s vision clearly extends beyond trade disputes to a fundamental reordering of global finance.