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Expand chart
Data: Investing.com, Macrotrends; Chart: Andrew Witherspoon/Axios

Fears of a major currency devaluation by China have gripped the market in recent days, but if history is a guide, it's really a dollar devaluation that should worry investors.

The big picture: President Trump's dissatisfaction with the dollar's strength and the boiling trade war with China are setting the stage for a second Plaza Accord, or this time a "Mar-a-Lago Accord," experts say, with the dollar falling and the yuan rising.

Why it matters: A weak dollar makes U.S. exports more competitive internationally, but also weakens Americans' purchasing power.

Background: In September 1985, the U.S. joined with France, Germany, Japan and the U.K. to create the Plaza Accord, an agreement to reduce the value of the dollar, particularly against the Japanese yen.

  • The value of the dollar fell by 51% versus the yen from 1985 to 1987, and by 1995, it had dropped more than 70%.

What they're saying: "The stronger dollar is bad not just for the US, but also for countries with significant amounts of dollar denominated debt. Think most emerging markets," Douglas Borthwick, managing partner at Makro Intelligence, tells Axios in a message.

  • "There comes a time when the dollar is so strong that it is destabilizing to the world economy. The way out of that is a Plaza Accord. A re-alignment of exchange rates."

How it works: In addition to helping U.S. multinational firms and emerging market countries with high amounts of debt in dollars — which gets more expensive as the dollar appreciates — major exporting countries in Europe as well as Japan would benefit from a stronger yuan because it would make their exports more competitive against China's.

What's next? Kuniyuki Hirai, head of trading at investment bank MUFG, says he sees the yuan falling as low as 6.05 per dollar in the not-too-distant future.

Yes, but: Many are skeptical of Trump's ability to reach a multilateral deal of this size and scope, given his general antagonism toward allies and adversaries alike, or that China would allow such an agreement. But China may not have a choice.

Go deeper

Updated 5 hours ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Pfizer and Moderna boosters overwhelmingly prevent Omicron hospitalizations, CDC finds — Omicron pushes COVID deaths toward 2,000 per day — The pandemic-proof health care giant.
  2. Vaccines: The case for Operation Warp Speed 2.0 — Starbucks drops worker vaccine or test requirement after SCOTUS ruling — Kids' COVID vaccination rates are particularly low in rural America.
  3. Politics: Biden concedes U.S. should have done more testing — Arizona says it "will not be intimidated" by Biden on anti-mask school policies — Federal judge blocks Biden's vaccine mandate for federal workers.
  4. World: American Airlines flight to London forced to turn around over mask dispute — WHO: COVID health emergency could end this year — Greece imposes vaccine mandate for people 60 and older — Austria approves COVID vaccine mandate for adults.
  5. Variant tracker

Arizona governor sues Biden administration over COVID funds tied to mandates

A teacher prepares a hallway barrier to help students maintain social distancing at John B. Wright Elementary School in Tucson, Arizona, on Aug. 14, 2020. Photo: Cheney Orr/Bloomberg via Getty Images

Arizona Gov. Doug Ducey (R) filed a lawsuit Friday against the Biden administration for ordering the state to stop allocating federal COVID relief funds to schools that don't comply with public health recommendations such as masking, the Arizona Republic reports.

Why it matters: The Treasury Department said last week that the state would have to pay back the money if Ducey does not redesignate the $173 million programs to ensure they don't "undermine efforts to stop the spread of COVID-19."

Federal judge blocks Biden's vaccine mandate for federal workers

President Biden speaking from Eisenhower Executive Office Building on Jan. 21. Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

A federal judge in Texas blocked the Biden administration from enforcing its coronavirus vaccine mandate for federal workers on Friday, citing the outcome of last week's Supreme Court ruling that nullified the administration's vaccine-or-test requirement for large employers.

Why it matters: It's a blow to President Biden's efforts to increase the U.S.' vaccination rates, though much of the federal workforce has already been vaccinated against the virus.