Chief Investment Strategist, The Freeport Society
I’ll be straight with you…
I have no idea what President Trump’s tariff rates are going to look like tomorrow, let alone a month or a year from now.
I can barely keep up with where they are today!
But while there’s a lot of noise around the trade war, there is also a strong signal forming.
The tariffs are part of a larger plan by the Trump administration to “rebalance” global trade… a plan the press had dubbed the “Mar-a-Lago Accord.”
It’s based on a November 2024 paper written by the chairman of Trump’s Council of Economic Advisors – a Harvard Ph.D. called Stephen Miran.
And at its heart, it proposes forcing America’s trading partners to strengthen their currencies versus the U.S. dollar, making U.S. exports cheaper and imports more expensive.
At The Freeport Society, we believe in free markets, free enterprise, and free trade. And we’re skeptical of grand plans by the political elite to reorder the economy – whether it’s Trump, Biden or any other president.
We prefer to let the “invisible hand” that Adam Smith wrote about in The Wealth of Nations work its magic.
But we don’t make policy. All we can do is navigate it and, ideally, profit from it.
And the Mar-a-Lago Accord idea has not only drawn the attention of prominent Wall Street strategist and research shops, it’s getting a lot of play in the financial media.
So, today, let’s look at what the Mar-a-Lago Accord is and what it means for our money.
As we’ll get into, it has plenty of potential pitfalls. But if it comes to pass, you’ll want to protect yourself from the wealth-sapping effects of a cheaper dollar.
Let’s start with the basics.
Trump’s “Stealth Tariff”
Trump wants to boost American manufacturing by making American products cheaper than their foreign competition.
He wants to balance America’s $900 billion trade deficit (the difference between the value of imports and exports) by weakening the exchange rate of the U.S. dollar.
When the dollar is strong relative to overseas currencies, it makes U.S. exports more expensive. A weaker dollar makes U.S. exports more affordable.
Think of a weaker dollar as a “stealth tariff.” It gives U.S. exporters an advantage but without the negative political fallout of a trade war.
The easiest way for Trump to make his policy agenda sustainable is make the dollar weaker.
And according to Miran, Trump’s tariff threats are a way to bring them to the negotiating table.
There’s even a component of the plan that would help bring down the U.S. national debt.
The Trump administration would require foreign holders of U.S. Treasury bonds to exchange their interest-bearing bonds for 100-year bonds that pay no interest.
This would immediately chop about $300 billion off of Uncle Sam’s $1 trillion annual interest expense.
It would also look up those reserve.
Could the Mar-a-Lago Accord Work?
I have my doubts about the debt swap idea.
Unilaterally restructuring the debt would technically be a default… and probably result in widespread dumping of U.S. Treasury bonds.
It’s hard to know how exactly investors would react and what the consequences would be. But how comfortable would you be holding the bonds of an issuer who changes the rules as they go?
The Trump team wants a weaker dollar. But they still wants a world that revolves around the dollar. And getting rid of interest payments on Treasury bonds may send America’s creditors looking outside of dollar assets for those interest payments.
But setting that aside, devaluing the dollar is certainly feasible.
In the 1985 Plaza Accord, the Reagan administration negotiated an ordered depreciation of the dollar relative to the currencies of Britain, France, West Germany, and Japan.
And back then, the goal was the same as it is today – shrink the U.S. trade deficit.
And starting in 1988, the trade deficit did narrow for a couple years. But it was short lived. As soon as the American economy really started booming in the 1990s, the trade deficit exploded again.
And that makes sense…
If currency values were the only thing that mattered for competitiveness, then how has Germany managed to run surpluses since the 1990s despite the euro being expensive relative to the dollar for long stretches?
And while America runs a massive deficit in goods, it runs an impressive $295 billion surplus in services.
A strong dollar hasn’t hurt America’s ability to compete globally. We have the most productive and driven workers in the world, and our services – particularly in technology, finance, and business consulting – are competitive.
Weaker Dollar = Higher Gold Prices
You know what the biggest problem to weakening the dollar would be?
Inflation.
Let’s cast aside for the risks involved with a financial engineering project on this scale. And let’s keep it real simple…
The Mar-a-Lago Accord will – by design – reduce the buying power of your dollars.
Yes, it may be a boon for U.S. exporters and the folks who work for them. It may even boost jobs.
But it won’t be a free lunch. And the downside will be that the dollars you earn and save will be worth less.
This is why the global central banks have been backing up the truck and buying gold. They are diversifying their own dollar risk.
Central banks added 1,045 metric tons of gold to their vaults last year, the third year in a row that buying has topped 1,000 metric tons.
And a survey by the World Gold Council last year found that 29% of central bankers planned to further increase their holdings. That’s the highest levels since the survey began in 2018.
It’s no wonder the price of gold recently crossed $3,000 an ounce for the first time. That’s the sort of thing that will get investors’ attention.
Now, you tell me. Given the very real possibility that the budding trade war evolves into a coordinated plan to devalue the dollar… does it make sense to own more or less gold?
We’ve had gold as an open recommendation at our flagship Freeport Investor advisory since we launched it in December 2023.
We’re up almost 50% so far. And if the Mar-a-Lago Accord becomes a reality, more gains are on their way.
How to Play It
You can buy physical gold from a reputable dealer such as our friends at Asset Strategies International. (We collect no fees or payments of any kind for recommending them. We’ve simply known them a long time and trust them to look after you well.)
Or you can get exposure to gold through a gold-backed exchange-traded fund (ETF).
The one we hold in the Freeport Investor model portfolio is the SPDR Gold MiniShares Trust (GLDM).
Like the better known SPDR Gold Trust (GLD), it stores gives you exposure to physical gold without the need to store or insure it yourself.
But it charges an annual fee of just 0.1% versus 0.4% for GLD, making it a cheaper alternative.
So, it’s a no brainer if you’re looking to go the ETF route for your gold.
To life, liberty and the pursuit of wealth,
Charles Sizemore
Chief Investment Strategist, The Freeport Society