Politics, consumption, and semiconductors in transition – A look at global shifts, consumer behavior, and technological drivers

The Atlanta Fed publishes an estimate of current economic growth on a weekly basis. However, many investors rubbed their eyes when this suddenly collapsed at the end of February, signalling a recession in the USA. However, this fear disappears as soon as you look at the data behind the Atlanta Fed’s model. Two months into the first quarter – with only January data and a February release – the estimate for US economic growth (GDPNow) relies on very incomplete data sets to provide a complete picture of the quarter. GDPNow is historically very volatile. The main driver behind recession expectations is imports, which have outstripped exports. This is because American importers feared the threat of tariffs and were quick to import as many goods as possible. There was also a strike by harbour workers on the East Coast, which slowed exports. Regardless, a sharp increase in imports does not demonstrably indicate economic weakness, but may indicate healthy demand and/or the expectation of companies to meet expected demand. Interestingly, the estimates of the New York Fed or the St. Louis Fed do not indicate a recession. This is also because in times of political changes (tariffs, taxes, …) the estimation methods used can be very sensitive under certain circumstances.

Meanwhile, inflation remains stubborn. In the USA, inflation is unlikely to return to familiar levels without a recession. It is much more likely that inflation rates will be between 3-4% in the coming quarters. This is also because the US housing market is structurally tight. More new homes are still being built than there is new housing stock. Furthermore, liquidity is being insufficiently contained. The money supply (US broad money supply) continues to rise and credit growth is also increasing. With President Trump’s executive order on the US border, there will be a positive shock on the labour market and workers will become scarce again. Even before the new government takes office in Germany, the Bundestag reacts to the latest changes in US security policy. Gigantic investment and defence spending has been announced. In total, additional debt of around EUR 1.5 trillion will be taken on over the next few years. This could increase German national debt by up to 34% to 97% of GDP. The debt brake will be relaxed: defence spending now only has to be financed at 1% within the debt brake. By way of illustration: Germany’s GDP is EUR 4.4 trillion, 3% is to be invested in defence spending (according to NATO), which corresponds to EUR 132 billion, of which only around EUR 44 billion (1%) now has to be financed within the framework of the debt brake. The countries are also now allowed to aim for annual new debt of 0.35% of GDP – previously the budgets had to be balanced. In addition, a special fund of EUR 500 billion will be created, including for infrastructure expenditure (renovation and construction of bridges).

MAR-A-LAGO ACCORD

The term Mar-a-Lago has gained prominence following the publication of a paper by Stephen Miran in November 2024. Mar-a-Lago is also the president’s personal retreat location in Florida. In it, Miran proposes several strategies to reform global trade and counteract the economic imbalances that he believes are caused by a dollar that is too strong. Miran himself worked in the Treasury Department under Steve Mnuchin during Trump’s first term and then moved on to Wall Street; he is now head of all economic advisors in the Trump administration. His ideas are not new and are also based on articles by Zoltan Pozsar (ex-CS economist) and Scott Bessent (Treasury Secretary and former hedge fund manager). According to the Mar-a-Lago Accord, the US national debt should be tackled using a three-pronged approach.

1. Tariffs: The use of tariffs as leverage to force other countries to meet US demands and as a means of increasing revenue.
2. Sovereign wealth fund: Establishment of a US sovereign wealth fund to monetize undervalued US assets (e.g., revaluation of gold reserves) in order to generate capital.
3. Debt swap/debt restructuring: Demand that NATO countries and other allies pay for the military protection of the US, they have received for decades, possibly through debt swaps, in which existing debt is exchanged for long-term zero-coupon treasury securities.

While the details remain speculative, the general premise behind the Mar-a-Lago agreement revolves around Trump’s commitment to boost American manufacturing and exports. The challenge lies in the current strength of the dollar, which is hurting the competitiveness of US goods abroad. Given the US trade deficit, which will reach a record $1.2 trillion in 2024, some economists argue that a weaker dollar could help close the gap by increasing the attractiveness of American exports.

 

1. TARIFFS

Trade and tariff adjustments could play a central role, as Trump has expressed the idea of replacing the Internal Revenue Service with an ‘External Revenue Service’ that collects money from foreign countries. This points to a shift towards an economic policy that could force trading partners to comply with regulations. Currency intervention could also play a role, with governments potentially agreeing to co-ordinated efforts in the foreign exchange markets to adjust currency values. However, given today’s massive daily foreign exchange trading volume of $7.5 trillion, direct intervention may be less effective than in the 1980s.

 

2. SOVEREIGN WEALTH FUND

The core idea is to monetise the assets of the United States, with an initial focus on revaluing the gold reserves. This could generate significant capital (hundreds of billions of dollars). At current market prices, the gold stored at Fort Knox, Kentucky, and other locations would be worth about $758 billion, but due to a 1973 law that sets the price, it is only valued at $11 billion on the Federal Reserve’s balance sheet. Both Trump and Elon Musk have expressed an interest in reviewing Fort Knox’s gold reserves, fuelling speculation.

Bitcoin is also expected to play a decisive role in a possible sovereign wealth fund for the USA. While some in the Bitcoin community are enthusiastic about potential Bitcoin purchases by the government or a Bitcoin reserve, the most likely scenario is the transfer of already confiscated Bitcoin (worth around 12 billion US dollars) to the sovereign wealth fund.

However, the American sovereign wealth fund would be the first of its kind, as the USA has a very high level of debt. Normally, countries with high asset values such as oil use sovereign wealth funds to secure the income from this ‘finite’ asset for future generations with investments. The description of the US sovereign wealth fund tends more towards a ‘leveraged hedge fund’ model, where the government borrows money to invest in assets in the hope of outperforming interest rates. There are concerns about government speculation with public money, potentially leading to rising interest rates for citizens, as well as the possibility of poor management leading to losses. There are also ethical concerns about the government’s involvement in private companies, which allows it to influence internal decisions.

 

3. DEBT SWAP

For 80 years, the US has provided security to many nations (mainly through US naval patrols of the world’s oceans) in exchange for its alignment with the West and democratic values. The US has not directly charged for these protective services. Trump sees this as a ‘pawn sacrifice’ by the US and wants countries to pay for the security they receive. He wants NATO countries to spend at least 5% of their GDP on defence, with some of this money presumably flowing back to US arms companies.

The core concept is for countries with large debt holdings to swap existing government bonds for 100-year or perpetual, interest-free, non-tradable government bonds (essentially giving up a liquid, interest-bearing asset for an illiquid, interest-free asset). This would significantly reduce the burden of interest payments on the US and thus improve the national budget. But why would countries agree to such a demand? The threat is that the USA could withdraw its security guarantees if countries refuse. This could mean a reduction in naval protection, a weakening of the NATO alliance obligation (Article 5) or a general reduction in military support for the USA.

 

CONCLUSION

Increasing the competitiveness of American industry is not just about a weaker US dollar, but also about investment. The irony is that unless the US government is able to reduce the budget deficit or encourage Americans to save more and consume less, or divert investment from other sectors of the economy, these investments in manufacturing will have to be financed by loans from abroad, making the US dollar stronger, at least temporarily. However, a weaker US dollar is seen as a mechanism to strengthen American competitiveness. To blame reserve currency status for the failure of US governments to support their people through inevitable structural adjustments is a distortion of the truth. While it may be true, as Miran says, that ‘this overvaluation has weighed heavily on American manufacturing and favours wealthy Americans’, this ignores the growth of the US tech sector, which has made the United States a more attractive investment destination and driven the overall shift in demand away from goods to services.

The forced conversion of US government bonds will reduce liquidity and accelerate the shift away from the US dollar as a reserve currency. The large secondary market for US government bonds and the dominance of the US dollar in trade and financial flows have been an important element of US exceptionalism. Its role as a reserve currency has allowed the US to maintain much larger budget deficits without suffering from much higher interest rates or having its currency collapse as investors rush out the door. The short-lived career of Liz Truss as UK Prime Minister shows the costs that financial markets impose once they decide that a fiscal policy is unsustainable.

One of the most consequential conclusions from the Mar-a-Lago talks is the positive impact on the gold price. A weaker dollar historically drives demand for gold as a store of value, and the uncertainty surrounding US debt policy could further increase the metal’s appeal. Even though the Mar-a-Lago agreement is more of a concept than a concrete policy, its potential impact is enormous. The coming months will show whether the Trump administration will formally pursue these strategies or whether they will remain theoretical discussions among economists and strategists. However, the discussion about possible measures is already damaging global stability. If countries refuse to pay or default on debt, Trump could impose tariffs, leading to a breakdown in international relations and potentially a break-up of the existing global order. The Eurocrats could reject this and refuse to negotiate with Trump.

Some countries might prefer to pay protection money to rivals like Putin or Xi rather than accede to US demands. While some argue that it is time for other nations to pay for security, others fear that the abolition of ‘free’ protection would lead to countries no longer aligning themselves with the US on global political issues.

The Mar-a-Lago concept has the potential to be a defining moment, comparable to other comprehensive agreements that transform the global economy and relations between nations.