History repeats: Plaza and the Trump tariffs

By the mid-1980s, the US dollar had appreciated by over 50% against the Japanese yen and the German mark. This surge — driven by tight US monetary policy and high interest rates, and, as the accusation went, deliberate manipulation — made American exports increasingly uncompetitive.

The US government was not happy. America First and all that.

In Washington, pressure was mounting. Ronald Reagan’s administration, while nominally committed to free markets, had to "do something" as the trade deficit widened and domestic jobs came under threat — these dastardly foreigners and their America-hurting policies. Congress was hostile.

And, then just like now, the US had a blunt tool. If you want access to the American consumer, you have to play by America's terms. The Germans and Japanese wanted to sell cars (and other things) to the US; the US could say no.

It all came to a head in 1985, when the then five major economies — the United States, Japan, West Germany, France and the United Kingdom — met at the Plaza Hotel in New York City.

They agreed to a controlled depreciation of the US dollar, hoping to rebalance trade flows by making American exports cheaper and foreign imports more expensive. The agreement, now known as the Plaza Accord, aimed to correct these imbalances through joint currency market interventions.

The Plaza Hotel was soon after bought by Donald Trump, but he later lost control of it to creditors.

It worked — at least mechanically. The dollar weakened significantly over the next two years. See the figure:

Fast forward four decades.

The Trump administration rolled out a wave of tariffs, this time not as part of a grand international negotiation but as an assertion of economic sovereignty. The rationale is familiar: long-standing imbalances, perceived slights and restoration of national strength.

The difference? Coordination versus confrontation.

The Plaza Accord was cooperative while Trump's tariffs are unilateral.

Both express the same instinct: fix imbalances and abuse with force. But they also reflect something more enduring — the persistent belief in US economic primacy. The US maintains it has both the right and the power to shape global economic rules in its favour.

History repeats (or rhymes), and those who forget it are condemned to repeat it.

P.S.
I was reminded of this today when revising the FX slides in my Global Financial Systems master's course.