Signum Global Advisors

US President-elect Donald Trump’s new Secretary of Treasury Scott Bessent is known to harbor ambitions for a ‘global economic reordering’ under his watch. This note explores the gist of the concept, and its odds of success.

First, a preamble on semantics: the grand bargain Bessent has hinted at has alternatively been called (by numerous differing observers):
- ‘Bretton Woods 2.0 (or 3.0)’
- ‘Plaza Accord 2.0’
- ‘Trump Tower Accord’
- ‘Mar-a-Lago Accord’
All revolve around approximately the same idea:
- Countries bending to the US’s demands will be spared economic sticks (e.g. tariffs) and granted concessions (or protections).
- Most often, the key portrayed US demand is a strengthening of competitors’ currencies (hence the reference to the 1985 Plaza Accord). Others include:
  - FDI into the US.
  - Purchase of US Treasuries.
- Some – though not necessarily a majority – of the floated “carrots’” descriptions mix economic (e.g. tariff exemptions) and (geo)political gestures by the US (e.g. continued military protection). Others include:
  - Avoiding investment restrictions.

In their own words:
- From Scott Bessent:
  - “I think we establish criteria […]; we have green, yellow, red […]. This is how you get in the green box; this is how you stay in the green box; if you’re India, you want to have 20% tariffs, you want to buy sanctioned Russian oil, you’re in the yellow box, and by the way, you want to keep buying that oil, you’re moving toward the red box. […] The green box is shared values, shared economies, shared defense, shared currency goals. […] Make’em pay” (Source)
- From Shahin Vallee:
  - “the likely upshot would be an international grand bargain in the form of a co-ordinated and gradual depreciation of the dollar in exchange for a reduction in American tariffs” (Source)
- From Louis-Vincent Gave:
  - “Items Gave sees as topping Trump’s wish list: a stronger yuan and a weaker US dollar; for Beijing to push Russia to come to the negotiating table over Ukraine; for Chinese companies to open factories in the US; […] a promise from China to keep North Korea in check” (Source)
- From Stephen Miran:
  - “The U.S. Government might announce a list of demands from Chinese policy—say, opening particular markets to American companies, an end to or reparations for intellectual property theft, purchases of agricultural commodities, currency appreciation, or more. The U.S. can proceed to gradually implement tariffs if China does not meet these demands. […] There is another potential use of the leverage provided by tariffs: an alternative form of Mar-a-Lago Accord that sees the removal of tariffs in exchange for significant industrial investment in the United States” (Source)

Our own take:
- The general idea is perfectly reasonable, and has some potential. But:
  - The plan’s complexity carries three challenges:
    - 1) While evidently smart, Trump is known to have a preference for simple, hard-hitting ideas.
    - 2) Likewise, the president-elect is known to have a short attention-span, which stands at odds with the time it would likely take to roll out and execute much of the above.
    - 3) While Trump does have a history of creating ‘linkages’ between economic and non-economic issues, the more a plan requires ‘all-of-government’ coordination (for example between the departments of Treasury, Commerce, State, and Defense), the harder it will be to implement.
  - Given the plan’s many manifestations, it is therefore worth looking under the hood – and here we see some important nuances:
    - 1) Despite an overwhelming focus on monetary valuations, this may be the toughest (read: least likely to succeed) aspect of any ‘global’ arrangement.
    - 2) Despite an overwhelming focus on pressuring China, we believe Bessent (et al)’s plan may have greater success in convincing ‘friends’ (e.g. EU, Asia ex-China, Mexico) than ‘foes’ (e.g. China).
  - On a more ‘optimistic’ note, one suggestion that has been floated and that we believe would do a ‘good job’ of reconciling our longstanding view that the second Trump administration will not be interested in ‘endless, fruitless’ negotiations with China, but could still be open to easing off Beijing under certain conditions, is that the new Bessent-, Lutnick-, or Greer-led team could simply pursue its punitive agenda (tariffs) unilaterally, and ‘inform’ Beijing that reprieve could come in exchange for concessions, but that no time will be ‘wasted’ going back and forth on the matter – the Chinese government must act willingly.
    - We have already hinted at this in regards to the potential salvaging of the so-called ‘Phase 1’ deal already on the books.