Mar-a-Lago accord may aid China

The provisional trade deal reached by China and the United States in Geneva last month exceeded expectations, with the two sides agreeing to roll back for 90 days the majority of tariffs and other countermeasures they had imposed in the preceding weeks.

- Yao Yang

To be sure, a number of tariffs remain — including all those the US imposed on China during Donald Trump's first presidency — and little progress was made in resolving underlying disagreements, such as over fentanyl flows into the US. But with more talks set to take place (amid and despite accusations by both sides that the provisional agreement has been violated), a robust agreement may well be in the offing.

To understand what such an agreement might look like, it is worth considering the grievances behind Mr Trump's tariff policy. Conventional economic theory holds that, in a flexible exchange-rate system, changes in a currency's value should lead to a stable trade balance in the issuing economy. But, as experience shows, a number of factors can disrupt this dynamic. In the case of the dollar, it is very easy to pin down the main one: its status as the world's dominant reserve currency.