Read: Why the “tail risk of a currency war cannot be ruled out” as tensions between the US and China escalate. An undervalued currency means that the same imports would experience higher prices in the United States due to unfavourable exchange rates. What a high dollar means for the U.S. is low inflation and low interest rates that benefit consumers because they have enough dollars to far exceed the prices paid for goods. What the United States has agreed to is to transfer some of its GDP to Europe and Japan so that these economies can return to growth. And all this was achieved without fiscal stimulus – only an adjustment of exchange rates. What we understand today are the harsh consequences that such devaluations can have on an economy. It is therefore not surprising that the 1985 agreement, concocted during meetings between the United States, Japan, West Germany, France and Great Britain at the Plaza Hotel in New York (acquired by Trump in 1988 and which had to be sold four years later by his lenders), brings back memories. In fact, Axios wrote Wednesday about speculation about the long-awaited prospect of a “Mar-a-Lago” deal. What the Plaza agreement meant for the United States was a devalued currency. U.S. producers are returning to profitability due to favourable exchange rates abroad, an export regime that has become fairly profitable. A high U.S.
dollar means that U.S. producers cannot compete with cheap imports from Japan and European countries at home, because these imports are much cheaper than what U.S. producers can sell under their profitability agreements. TOKYO (Reuters) – A monetary provision will not be included in a Japan-U.S. offer, Japanese Finance Minister Taro Aso said on Tuesday. Bilateral trade agreement that the two countries intend to conclude by the end of this month. Japan has resisted pressure from the United States to link trade to monetary issues. The dollar`s rise came after the Federal Reserve, led by Paul Volcker, virtually eased inflationary pressures in the U.S. economy, which contributed to a strong dollar. The U.S. currency was also boosted by rising budget deficits during President Reagan`s tenure. Overall, between 1980 and 1985, the dollar increased by about 50% against major currencies, contributing to a growing U.S.
trade deficit and increased demands for protectionist measures in Congress. A second agreement, the Louvre Agreement, was signed in 1987 to put an end to the continued fall of the dollar. One of the unintended consequences of the Plaza agreement was that it led Japan to increase its trade and investment with East Asia, making it less dependent on the United States. The dollar fell about 40 percent over the next two years, and the trade balance also improved after a typical delay, Harvard Kennedy School economist Jeffrey Frankel recalled in a 2015 paper, as Congress renounced new trade barriers.