Key Questions: What Is the Mar-a-Lago Accord and Why Should Investors Care?

“If you want to study tariffs, and how powerful they are, study the administration of President William McKinley. America had so much money they didn't know what to do with it!” 

U.S. President Donald Trump

In light of the tumultuous nature of recent events surrounding tariffs and the Trump administration’s approach to trade policy, we offer this piece to provide a broader perspective.

President William McKinley's tariff strategy in the late 19th century and President Donald Trump's trade policies in the 21st century both embody the principle of economic nationalism through protectionism. As a congressman in 1890, McKinley championed the McKinley Tariff Act, raising some import duties to nearly 50% to protect U.S. industries from foreign competition. This act sought to raise revenue, fuel manufacturing jobs, and support domestic growth. 

More than a century later, President Trump has reintroduced protectionism through his "America First" policy. His trade policies, informally referred to by some as the “Mar-a-Lago Accord,” (a reference to the president’s Florida residence) seek to impose sweeping tariffs on goods targeting America’s largest trading partners to revive manufacturing jobs and counter perceived unfair practices, echoing McKinley’s protectionist logic.

The Mar-a-Lago Accord

The Mar-a-Lago Accord is a conceptual economic framework, designed to strategically devalue the U.S. dollar. The objective is to improve trade balances and revenue through tariffs, repatriate manufacturing jobs, and boost domestic production. Inspired by historical policies, it seeks to make imports costly and reduce trade deficits. Though not official, it reflects discussions about the U.S. economy's role in global trade.

Three key elements of the framework include weakening the U.S. dollar, increasing tariffs (or taxes on imports), and creating a sovereign wealth fund. 

• Reindustrialization Through a Weaker Dollar and Tariffs

  The Trump administration argues that the U.S. dollar had become overvalued due to foreign currency manipulation and high interest rates, making American exports less competitive and imports more attractive. This dynamic has contributed to persistent trade deficits and the decline of domestic manufacturing. A weaker dollar, in their eyes, should help stimulate the economy by making U.S. exports more affordable for foreign buyers, increasing demand for American goods and services. This, in turn, should support domestic industries, create manufacturing jobs, and reduce the trade deficit.

  Tariffs, or taxes on imported goods, are a central component of the framework. By making foreign products more expensive, tariffs sought to give domestic industries a competitive advantage. The logic behind tariffs is straightforward: As imported goods become more costly, consumers and businesses are more likely to buy domestically produced alternatives. This increased demand should spur investment in local production, expand domestic industries, and create jobs.

  A weaker dollar and tariffs make exports more competitive and imports costly, encouraging consumers to purchase domestically produced goods. Although elevated import costs may result in temporary disruptions, such as increased inflation and slower economic growth, the administration asserts that long-term benefits, such as enhanced industrial activity and employment growth, will outweigh the risk of inaction.

• Sovereign Wealth Fund

  Related to the Trump administration’s trade policy, the president has proposed establishing a U.S. Sovereign Wealth Fund (SWF) as a government-owned investment vehicle to support economic growth and promote long-term fiscal stability. The fund could be financed through revenue sources such as tariffs, select sales of federal assets, and reinvestment of government earnings. The SWF would focus on generating returns by investing in infrastructure, technology, and key domestic industries essential for U.S. manufacturing revival and global competitiveness. By strategically allocating resources to high-growth sectors, the SWF could support industrial expansion, enhance economic security, and reduce reliance on short-term budget cycles.

  Additionally, the SWF could serve national security interests by funding critical infrastructure and emerging technologies, ensuring the U.S. remains at the forefront of innovation. Over time, its returns could help offset government expenditures, reducing the need for deficit-driven spending and supporting long-term economic resilience.

Economic Restructuring: Spending and Revenue Adjustment

President Trump's governance agenda centers on fiscal policies aimed at reindustrializing the U.S. economy, replacing income taxes with tariffs, and reducing government spending. This approach seeks to reshape revenue streams, minimize reliance on traditional taxation, and promote long-term fiscal stability.

For much of early U.S. history, tariffs were the federal government's primary source of revenue. President Trump has proposed reviving this model, arguing that tariffs on imported goods could provide significant revenue while encouraging domestic production and job creation. The administration contends that tariffs will ultimately contribute to reducing or even replacing income tax through the revenue generated from tariffs.

The administration has also prioritized reducing the size and cost of the federal government. Initiatives such as those initiated by the Department of Government Efficiency seek to streamline operations, eliminate waste, and reduce the federal deficit. Historically, government spending was minimal, averaging only 1.5% of GDP from 1790 to the Civil War and 4.1% of GDP in the 1920s. Today, federal spending accounts for approximately 24% of GDP, driven by factors such as social programs, defense, and health care. By cutting expenses, the administration hopes to achieve fiscal stability and reduce the national debt. 

Conclusion

President Trump's economic restructuring plan reflects a bold vision for reshaping the U.S. economy. By replacing income taxes with tariffs, reducing government spending, and promoting reindustrialization, the administration wants to achieve fiscal stability, boost domestic production, and create domestic jobs.

However, these policies are not without risks, including potential for trade wars, higher consumer prices, and challenges in reviving manufacturing. As the U.S. continues to navigate its economic future, the debate over the merits of these strategies highlights the complexities of balancing fiscal responsibility with economic growth.

For more information, please contact your advisor.