Imagine you are running the most competitive manufacturing economy on Earth. Your cars are outselling American cars on American soil. Your electronics are flooding American shelves. Your companies are buying Rockefeller Center and Pebble Beach. Your banks are eight of the 10 largest in the world. Every projection, every economic model, every analyst agrees: you are on course to become the dominant economic superpower of the 21st century.
And then, over the course of a single weekend, five men gather in a hotel in New York and make a decision that rewrites your entire future—without you fully understanding what you have agreed to. That is the story of Japan and the Plaza Accord of 1985. And the reason you need to understand every detail of it right now is that the same playbook, the same structural logic, the same pressures, the same tools are being dusted off and aimed at the next great economic rival of the United States. The names and the venue have changed. The hotel is now a resort in Florida. But the mechanism is nearly identical.
To understand why September 22nd, 1985 was such a pivotal date, you need to understand what the world looked like in the five years leading up to it. The early 1980s in the United States were defined by a paradox. The Federal Reserve, under Chairman Paul Volcker, had launched a brutal campaign against inflation by raising interest rates to levels not seen in modern American history. At their peak in 1981, interest rates in the United States hit over 20%. That is an almost incomprehensible number. To give you a sense of the consequences, mortgage rates were near 18%. Businesses could barely borrow. The economy slid into a severe recession.
But here’s the cruel irony of Volcker’s medicine. By raising rates that high, the United States made dollar-denominated assets extraordinarily attractive to global investors. Capital from around the world flooded into America chasing those yields. And when demand for dollar assets surges, the dollar itself surges. Between 1980 and 1985, the US dollar appreciated by approximately 50% against the Japanese yen, the West German Deutsche Mark, the French franc, and the British pound. By the spring of 1985, the dollar index, a measure of the dollar’s value against a basket of major currencies, was sitting at around 160. That is one of the strongest readings ever recorded.
A strong dollar sounds good. It sounds like winning. But for American manufacturers, it was a catastrophe. When the dollar is worth 50% more, your exports become 50% more expensive for foreign buyers. At the same time, every foreign product hitting American shores becomes dramatically cheaper. American factories were being gutted. Grain exporters were losing sales. Heavy manufacturers like Caterpillar were watching their order books dry up. IBM and Motorola were losing ground to foreign competitors who could price their products at a fraction of the American equivalents. Auto dealers across the Rust Belt were watching Japanese cars, better built, more fuel-efficient, and now spectacularly cheap due to the exchange rate, take a wrecking ball to Detroit.
And all of this was happening while Reagan’s first term fiscal expansion was blowing out the budget deficit. The United States was simultaneously running a massive trade deficit and a massive fiscal deficit. By 1985, the trade deficit had reached $122 billion, a record at the time that sent shockwaves through Washington. Congress was furious. Protectionist bills were being drafted. Legislators were openly discussing imposing tariffs and quotas on Japanese goods. Some members were talking about closing the American market entirely to certain foreign products. The political pressure was enormous.
Japan, meanwhile, had built an economic machine that the world had never quite seen before. In the three decades following World War II, Japan had executed one of the most remarkable industrial transformations in human history, going from a devastated, occupied nation to the second largest economy on Earth. By the early 1980s, Japan was dominating sector after sector. It had overtaken the United States to become the largest producer of semiconductors in the world. Its auto industry was technologically superior and producing vehicles at costs that American manufacturers simply could not match. Japanese steel, Japanese electronics, Japanese consumer goods, all of it was flooding American markets.
The Reagan administration viewed Japan as the primary economic threat. There were accusations of unfair trading practices, of intellectual property theft, of the Japanese government systematically engineering an undervalued yen to give its exporters an unfair competitive edge. Whether all of these accusations were entirely fair or partially exaggerated is a debate historians still have. What was not debatable was the scale of the trade imbalance and the explosive anger it was generating in Washington.
The new Treasury Secretary, James Baker, understood the dynamics clearly. If Congress passed sweeping protectionist legislation, it could shatter the global trading system, damage American allies, and potentially trigger a global recession. The alternative was to address the underlying problem—the overvalued dollar—through coordinated international action. Baker began quietly working the phones.
What happened next was one of the most secretive episodes in postwar financial history. Through the spring and summer of 1985, Treasury officials and their counterparts from Japan, West Germany, France, and the United Kingdom held a series of confidential preparatory meetings. The G5 deputies gathered secretly in July and August to hammer out the details. The preparations were described by participants as extraordinarily tight. Almost nothing leaked. The public had no idea what was being planned.
On September 22nd, 1985, the finance ministers and central bank governors of those five countries arrived at the Plaza Hotel on Fifth Avenue in New York City. The Plaza was, and remains, one of the most iconic grand hotels in the world—all gilded ceilings and marble floors, a monument to an era of extravagant American wealth. The meeting was not publicly announced in advance. The men arrived discreetly, and in the course of a single afternoon, they drafted and signed a communiqué that would reshape the global economy for decades.
The statement itself was written in the careful, almost comically understated language that diplomats and finance ministers prefer. It declared that exchange rates should better reflect underlying economic fundamentals and that the signatory nations agreed that “some further orderly appreciation of the non-dollar currencies was desirable.” They committed to intervening in currency markets to achieve this, and they agreed to broader macroeconomic policy coordination.
What that language translated to in practice was this: the United States wanted the dollar to come down, and the other four countries agreed to help make it happen. They would coordinate selling dollars in currency markets. Japan, in particular, would allow the yen to appreciate significantly. In exchange, the United States would work to reduce its fiscal deficit, and Japan and Germany would stimulate their domestic economies.
The original intention, as revealed by subsequent accounts, was a dollar depreciation of somewhere between 10 and 15%. A controlled, managed adjustment. Nothing too dramatic. Just enough to take the edge off the competitive imbalance and relieve the congressional pressure for protectionism. What actually happened was something far beyond anyone’s stated intentions.
The day the Plaza Accord was announced, currency markets reacted with startling violence. The dollar fell 4% against the yen and the Deutsche Mark in a single session. That is a seismic move for a major currency. Traders who had been positioned for a strong dollar found themselves on the wrong side of a suddenly coordinated global intervention. And the selling did not stop.
Over the next two and a half years, the yen nearly doubled in value against the dollar. When the agreement was signed in September 1985, $1 bought approximately 240 yen. By the time the dust settled in 1987, $1 bought approximately 120 yen. A Japanese exporter who had been earning 240 yen for every dollar of exports was now earning only 120. Overnight—well, over 24 months of escalating currency appreciation—the price competitiveness that had underpinned Japan’s export miracle was cut in half.
Think about what that means in concrete terms. A Japanese car that cost the American consumer a certain number of dollars in 1984 now cost dramatically more. Japanese electronics became suddenly expensive on American shelves. Japanese steel, Japanese machinery, Japanese semiconductors—everything Japan sold to the world priced itself out of the market with breathtaking speed. The Japanese economy entered what was called Endaka, literally “high yen” in Japanese, a period of acute recessionary pressure caused by the currency’s surge. Industrial output fell. Export-dependent manufacturers scrambled to cut costs, move production, or simply accept losses. The unemployment rate, always a politically sensitive number in Japan, began to rise. Consumer confidence dropped. The export miracle that had powered three decades of extraordinary growth was suddenly looking fragile.
And this is where the story takes its most consequential turn. Because the Bank of Japan, watching its export economy contract and facing political pressure to prevent a recession, did what central banks instinctively do in downturns. They cut interest rates—aggressively, dramatically. Between 1986 and 1987, the Bank of Japan slashed its benchmark interest rate from 5% down to an unprecedented low of 2.5%. The intention was to offset the deflationary impact of the yen’s appreciation by stimulating domestic demand. If exports were going to be less competitive, then Japan would need Japanese consumers and businesses to pick up the slack. Low interest rates would make borrowing cheap, encourage spending, and cushion the blow of Endaka.
What nobody fully anticipated was what cheap money would do to asset markets in a country already primed for speculation. Japan in the late 1980s was not just an export economy—it was a society with extraordinarily high savings rates, a banking sector flush with deposits, and a corporate culture in which banks were deeply entangled with the industrial companies they financed. When the Bank of Japan cut rates and kept them low, all of that capital had to go somewhere. It poured into the two most obvious asset classes available: stocks and real estate.
What followed was one of the most extraordinary financial bubbles in all of human history, and the word extraordinary is not an exaggeration. The numbers defy comprehension. The Nikkei 225 stock index, which stood at around 13,000 when the Plaza Accord was signed, climbed to a peak of 38,916 on December 29th, 1989. That is nearly a tripling of the stock market in four years. At its peak, the Tokyo Stock Exchange alone accounted for more than one-third of the entire global stock market capitalization. Japanese stocks in certain sectors were trading at valuations that bore no relationship to any recognizable measure of corporate value. Textile companies were trading at over 100 times earnings. Marine transportation companies were at 176 times earnings. Fishery and forestry firms were trading at 319 times earnings. These are numbers that belong on a list of warning signs, not on the pages of respected financial analyses—yet they were reported with admiration at the time.
The real estate market was even more surreal. Japanese banks, which had lost many of their traditional corporate clients to capital markets, began lending aggressively to property developers and speculators. Land was used as collateral, and as land prices rose, the collateral became more valuable, enabling even more borrowing, which drove prices higher still. The feedback loop was self-reinforcing and seemingly unstoppable. By 1989, the total value of Japanese real estate had reached roughly 2,000 trillion yen—a number so large it is difficult to process. Put it this way: at the height of the bubble, the land value of Japan was estimated to be approximately four times the total land value of the entire United States. The grounds of the Imperial Palace in Tokyo, a mere 1.15 square kilometers, were said to be worth more than the entire real estate value of the state of California. The 240 square miles of Tokyo, by some estimates, were worth more than all the land in the United States combined. These were not fringe calculations—they were reported in mainstream financial publications.
Corporate Japan had developed a practice called zaitech—financial engineering—in which companies borrowed cheaply and invested in assets that were rising rapidly, booking those speculative gains as part of their operating income. At the peak, an estimated 40 to 50% of corporate earnings across the Japanese economy were tied to zaitech-related financial speculation, rather than actual productive business activity. Japanese trading houses, manufacturers, and banks were all playing the same game: borrow cheaply, buy assets, watch them appreciate, borrow more against the newly inflated collateral, repeat.
The affluence of the period was staggering. Japanese consumers had never been wealthier. Companies bought Pebble Beach golf course in California. Rockefeller Center in New York passed into Japanese ownership. Japanese collectors were paying record prices at Western auction houses. In 1987, a Japanese insurer purchased Van Gogh’s Sunflowers for nearly $40 million. Collector Ryoei Saito spent $82.5 million on Van Gogh’s Portrait of Dr. Gachet, reportedly admitting he exceeded his planned price by $30 million simply because he wanted the work. At home, eight of the 10 largest banks in the world were Japanese. Japan’s GDP was the second largest on Earth, and many serious analysts believed it was on course to surpass the United States. Books with titles like The Japan That Can Say No became bestsellers. There was a genuine widespread belief in Japan and around the world that this was the beginning of a Japanese century.
It was not.
In 1989, the Bank of Japan began to grow alarmed by the scale of the speculation and the evident detachment of asset prices from any rational foundation. It began tightening monetary policy and raising interest rates. Over the next year, it raised rates five times, ultimately pushing the benchmark rate up to 6%. The effect was not gradual—it was catastrophic. The Nikkei peaked on December 29th, 1989. By August 1990, it had fallen to half its peak. Real estate followed with a lag, then fell even harder. Between 1991 and 2001, land values across Japan declined by approximately 70% from their peak. In the most expensive commercial districts of Tokyo, prime real estate was eventually worth less than 1% of what it had traded for at the top of the bubble. By 2004, Tokyo’s residential properties had fallen to roughly 10% of their late 1980s peak values. The destruction of wealth was on a scale with no modern precedent.
The banking system was left in ruins. Japanese banks had lent vast sums against collateral—land, stocks, commercial property—whose value had now collapsed. What had been solid assets on bank balance sheets became what economists call non-performing loans, essentially worthless. But Japan’s banking culture, deeply shaped by their relationship-based keiretsu system in which banks were intertwined with the companies they financed, did not write those losses down quickly. Instead, banks maintained the fiction that the loans might be repaid, carrying them on the books at face value. These zombie banks lent money to zombie companies—businesses that were functionally insolvent but kept alive by continued bank support to avoid triggering a recognition of losses.
This extended denial had a profound cost. Capital that should have been written off and redeployed instead sat frozen in bad loans. Banks could not lend normally, businesses could not invest with confidence. Consumers, watching their property values and pension savings collapse, stopped spending. The textbook response to a recession—cut rates, increase government spending, stimulate demand—was tried repeatedly and largely failed. Interest rates were cut to near zero in the mid-1990s and eventually went negative. Massive fiscal stimulus packages were announced. Infrastructure was built. None of it seemed to work. From 1991 to 2003, Japan’s GDP grew at an average of only 1.14% annually. For comparison, the United States grew at roughly three times that rate during the same period.
In 1989, of the world’s 50 most valuable companies by market capitalization, 32 were Japanese. By 2018, only one—Toyota—remained in the top 50. The country that had seemed poised to dominate the 21st century had spent a decade standing still, then spent two more decades standing still again. The period originally called the lost decade quietly became the lost two decades, then the lost three decades. Japan’s nominal GDP in 2017 was only 2.6% higher than it had been in 1997—20 years of effective stagnation. Between 1995 and 2025, the country’s nominal GDP actually fell from $5.55 trillion to approximately $4.27 trillion. Real wages declined around 11% over that same stretch. An entire generation of Japanese workers came of age in an economy defined by deflation, precarity, and low expectations. The confident, expansive Japan of the 1980s became a cautionary tale studied in economics classrooms around the world.
And through all of this, the question has never quite gone away: how much of it traces back to that afternoon in the Plaza Hotel?
The honest answer is complicated, and it is worth being precise rather than dramatic. Economists debate the causal chain with genuine disagreement. Jeffrey Frankel of Harvard, one of the foremost experts on the Plaza Accord, has pointed out that the timing creates problems for a simple cause-and-effect narrative. The yen appreciated most sharply in 1985 and 1986, but the bubble years were 1987 to 1989—a period when the yen had actually stabilized. The final crash did not come until 1990. So the Plaza Accord was not a single event that directly blew up Japan’s economy six years later. What it was, more precisely, was the triggering mechanism for a chain of policy responses that ultimately proved catastrophic. The yen appreciation squeezed exports and threatened recession. The Bank of Japan cut rates to compensate. Those low rates inflated an asset bubble. Japan’s domestic policy mistakes—keeping rates low for too long, failing to regulate speculative lending, delaying the recognition of bad loans—turned a manageable adjustment into a generational catastrophe. The Plaza Accord was the first domino.
There is also the question of what Japan’s options actually were. Some historians argue that Japan effectively had no real choice. The United States was threatening draconian protectionist legislation that would have closed American markets to Japanese goods. Japan’s entire economic model depended on access to the US market. Faced with the choice between signing the Plaza Accord and potentially having the American market slammed shut, Japanese Finance Ministry officials calculated that the Accord was the lesser of two evils. They agreed to currency appreciation, hoping to preserve the trading relationship, not realizing that the appreciation would go so much further than anyone had planned. The original intention was 10 to 15%. What happened was 50% and counting. Once markets understood that the G5 were committed to dollar depreciation, they piled on, driving the yen far beyond what any of the signatories had projected.
There was also a fundamental loss of control in the mechanism. Coordinated jawboning and some currency market intervention is a powerful signal, but it does not come with a precise dial that tells you when to stop. The yen kept going long after the intended destination had been passed. And that, perhaps, is the most important lesson from the Plaza Accord—not that currency coordination is inherently malicious, or that the United States deliberately set out to destroy Japan’s economy. The more sober reading is that coordinated currency interventions of this scale carry massive secondary consequences that nobody can fully foresee or control. You can start the avalanche; you cannot decide where it stops.
Now, it is 2025. The United States is once again running trade deficits on an extraordinary scale. In 2024, the US trade deficit in goods and services reached approximately $1.2 trillion—10 times the level that caused so much alarm in 1985. The US fiscal deficit in 2024 was approximately $1.8 trillion, compared to $210 billion in 1985. The dollar, by several measures, is close to its most overvalued level since the period right before the Plaza Accord itself. The parallels are striking enough that serious economists and policymakers have been drawing them explicitly.
And in Washington, a man named Stephen Miran has been doing the drawing most explicitly of all. Miran, who was appointed chair of the Council of Economic Advisers under President Trump’s second administration, published an essay in the fall of 2024—before taking the role—titled A User’s Guide to Restructuring the Global Trading System. In it, he laid out a comprehensive analysis of America’s trade deficit, argued that the structural overvaluation of the dollar is its primary cause, and proposed a set of mechanisms to bring the dollar down to a level he considers fair. Those mechanisms drew direct inspiration from 1985. And the name that commentators quickly attached to his framework was the Mar-a-Lago Accord—a reference both to Trump’s Florida resort and to the Plaza Accord itself.
The symmetry is almost too neat. Donald Trump bought the Plaza Hotel in 1988—three years after the accord that bore its name helped destabilize the Japanese economy. He acquired Mar-a-Lago in 1985, the very year that agreement was signed. Now, in his second administration, the people around him are proposing to use Mar-a-Lago as the symbolic venue for a new version of the same basic operation.
The core logic of Miran’s framework starts from the Triffin dilemma, a concept developed by Belgian economist Robert Triffin in the 1960s. Triffin’s insight was that the country whose currency serves as the global reserve currency faces an inherent contradiction. To supply the world with enough dollars for international trade and financial transactions, the United States must run persistent current account deficits. Essentially, it must send more dollars out into the world than come back in the form of exports. This supplies global liquidity, but it also means America structurally over-imports and under-exports. The very thing that makes the dollar the world’s currency also hollows out American manufacturing.
Miran’s remedy involves using tariffs as leverage—the threat of market access denial as a negotiating tool to pressure trading partners into allowing their currencies to appreciate against the dollar, or alternatively, to accept long-term US Treasury bonds in place of short-term bills, thereby reducing the cost of US borrowing while weakening the dollar’s attractiveness as a reserve asset. Allies who accept this arrangement maintain security guarantees. Allies who refuse might find themselves facing additional trade barriers. Sound familiar? It should, because the pressure Japan faced in 1985 was structurally analogous. Accept currency adjustment or face the congressional protectionism that would close American markets to your goods. Japan chose the former. It did not fully understand the consequences.
Treasury Secretary Scott Bessent has also signaled openness to the concept of a broader currency and trade reordering, describing it as a potential Bretton Woods-style realignment. Liberation Day tariffs were announced on April 2nd, 2025, imposing sweeping tariffs on practically every trading partner and framing the moment as a structural reset of the global trading order. The parallels to 1985 were invoked immediately and globally.
The country that now occupies the position Japan held in 1985—the export powerhouse with a massive bilateral surplus with the United States, the rising great power accused of currency manipulation and unfair trade practices, the economy that appears to be on a trajectory to rival or surpass American dominance—is, of course, China. The numbers are similar in certain ways, though far larger in scale. China’s bilateral trade surplus with the United States has at times exceeded $400 billion per year. Chinese manufacturing has displaced American jobs across entire sectors in ways that closely mirror what Japan did in the 1970s and 1980s. China has been the world’s largest exporter of goods for over a decade. Its technology companies, its electric vehicle manufacturers, its solar panel producers, and its semiconductor industry have all been cited in Washington as direct threats to American industrial competitiveness—essentially the same accusations leveled at Japanese electronics, auto, and chip companies 40 years ago.
And the Trump administration, in its second term, has been explicit that China is the primary target. The 145% tariffs imposed on Chinese goods in the spring of 2025 are in a different universe from anything attempted before. They are not a negotiating tactic with a gentle upper bound. They represent a comprehensive attempt to decouple the two largest economies on Earth.
But here is the crucial difference between 1985 and now, and it is a difference that every serious analyst has emphasized: China has studied Japan’s fate with extreme care, and it has absolutely no intention of repeating it. Beijing has publicly and privately identified the Plaza Accord as the single most dangerous template in modern economic history. Chinese economists and government officials have written extensively about how Japan’s forced currency appreciation led directly—even if through a chain of secondary consequences—to the lost decades. They have concluded that any agreement with the United States that results in a major appreciation of the yuan would be, in their calculation, an existential threat to China’s development model. They are not going to sign it.
Japan in 1985 was a formal US security ally. Its defense was entirely underwritten by the American military. It had 30,000 US troops on its soil. It had almost no independent foreign policy capacity. When Washington came knocking with a demand backed by the implicit threat of either protectionist legislation or a degraded security relationship, Tokyo had very limited leverage to refuse. It took what it calculated was the least bad option and hoped for the best. China is not Japan. China is a nuclear-armed great power with its own military, its own strategic vision, its own network of international partners, and decades of accumulated experience watching America use economic tools against rivals and allies alike. China has explicitly positioned its economic model as an alternative to American financial dominance. It has been building parallel systems—the Belt and Road Initiative, the BRICS currency discussions, the Asian Infrastructure Investment Bank, bilateral agreements to conduct trade in yuan rather than dollars—precisely to reduce the leverage that the United States has over it. When American officials float the idea of a Mar-a-Lago Accord, Chinese analysts do not see an opportunity for cooperation. They see a trap that Japan walked into, and they have resolved not to make the same mistake.
So does this mean the threat has passed? That because China refuses to cooperate, the whole Mar-a-Lago Accord concept simply cannot happen? Not quite, because the mechanisms being deployed in 2025 are not limited to diplomatic agreements. Tariffs at 145% on Chinese goods are a form of economic coercion far more aggressive than anything in the 1985 toolkit. Sanctions, investment restrictions, technology export controls, and the weaponization of the dollar-based payment system are all being brought to bear simultaneously. The Trump administration appears to be betting that if China cannot be persuaded into currency appreciation through a negotiated accord, it can be pressured into adjusting through the cumulative weight of economic warfare.
And there is a scenario, which serious economists consider non-trivial, in which the pressure produces something Japan-like through a different pathway. If tariffs and trade war escalation damage Chinese growth severely enough, Beijing may respond by deploying enormous fiscal and monetary stimulus to protect employment and maintain social stability. That kind of stimulus, as Japan demonstrated, does not necessarily flow into productive investment. It can find its way into asset bubbles, into debt-financed speculation, into exactly the kind of financial overextension that eventually collapses under its own weight. China’s real estate sector has already exhibited some of these characteristics. The Evergrande crisis of 2021 and the broader property market contraction that has continued since then bears more than a passing resemblance to early warning signs.
There’s also the question of countries that are not China. The Trump tariff regime targeted nearly every US trading partner, not just Beijing. Japan, South Korea, Taiwan, Vietnam, India, Mexico—all of them are facing various combinations of tariff pressure, implicit currency demands, and security-linked economic negotiations. Several of these are US allies who are far closer to Japan’s 1985 position of structural dependence on American security guarantees, and therefore far less able to simply refuse American economic demands. If a Mar-a-Lago Accord coalesces around a coalition of these smaller, more compliant partners, the dollar could still be pushed lower without China’s formal participation. And a weaker dollar is not without consequences for China, either, even without Beijing’s cooperation. If the dollar depreciates significantly, Chinese goods become more expensive in dollar terms, complicating exports. If American tariffs remain in place while the dollar simultaneously weakens, China faces a double compression on its export model. The mechanism is less clean than the Plaza Accord, less coordinated, less controllable, but the economic effect on Chinese exporters could be directionally similar to what the yen appreciation did to Japanese ones.
The deeper structural parallel—and this is the one that should concern everyone—is that the underlying problem the Plaza Accord was trying to fix in 1985 is the same problem that exists in 2025, only dramatically larger. The US trade deficit in 1985 was $122 billion. In 2024, it was $1.2 trillion. The US fiscal deficit in 1985 was $210 billion. In 2024, it was $1.8 trillion. The Triffin dilemma has not gone away. If anything, it has deepened. The dollar’s overvaluation by most measures is as acute now as it was on the eve of the Plaza meeting. The fundamental causes of the imbalance—that the United States spends more than it saves, that its fiscal policy generates structural deficits that must be financed by foreign capital inflows, that those capital inflows drive up the dollar and price American exports out of global markets—are not things that tariffs or currency coordination can fix. They require domestic policy changes that are politically nearly impossible to achieve. Reagan was supposed to reduce the US fiscal deficit as part of the Plaza Accord. He did not. The deficit kept growing. The underlying structural conditions that created the problem in 1985 were never actually addressed, which is why the problem is still here—10 times larger—40 years later.
There is one more dimension to this story that deserves attention, and it is the most uncomfortable one. The Plaza Accord did not destroy Japan all by itself. Japan’s own policy mistakes—extraordinary looseness of monetary policy through the late 1980s, the regulatory failure to constrain speculative bank lending, the delayed recognition of bad loans, the prolonged period of denial and zombie companies—all compounded the initial shock from currency appreciation. The Plaza Accord dealt the first blow, but Japan’s own financial institutions, corporations, and policymakers turned that blow into a generation-long catastrophe.
The lesson that is most transferable to the present moment is not simply that currency coordination is dangerous, though it can be. It is that when an export-dependent economy faces a sudden and severe loss of price competitiveness, the instinctive policy response—print money, cut rates, stimulate—can create secondary consequences that are far more destructive than the original problem. The medicine can be worse than the disease. And the more credit-fueled and asset-price dependent an economy has become, the more devastating the hangover when the stimulus is eventually withdrawn.
For China, this is a particularly sobering consideration. China’s property sector, which at its peak accounted for roughly 25 to 30% of GDP including related industries, has already begun contracting sharply. Household wealth in China is extraordinarily concentrated in real estate. Consumer confidence has been damaged. And yet the pressure on Chinese exports—from tariffs, from trade diversion, from Western companies diversifying supply chains out of China—continues to intensify. The temptation for Beijing to respond with aggressive monetary stimulus is real and growing. If China follows that path, if it cuts rates aggressively, if it floods the financial system with liquidity to offset the trade shock, it runs the risk of inflating bubbles in the assets that remain. Not necessarily real estate, which is already deflating, but perhaps in equities and municipal bonds, in financial instruments tied to the state-directed investment push into manufacturing and technology. And those bubbles, if they form, will eventually have to reckon with gravity.
What makes this particularly treacherous is that nobody—including the people making these decisions—can fully see the secondary consequences in advance. The Japanese Finance Ministry officials who signed the Plaza Accord in 1985 were intelligent, experienced, and acting in what they believed to be Japan’s best interests. The Bank of Japan officials who cut rates to counter the yen’s appreciation were following standard macroeconomic logic. The bankers who lent against rising land values were following incentive structures that looked perfectly rational in the moment. The bubble assembled itself from millions of individually reasonable-looking decisions, none of which seemed catastrophic in isolation. That is the nature of systemic financial crises. They do not arrive announced. They arrive through the slow accumulation of what looks, from close up, like rational behavior.
So where does this leave us? The Mar-a-Lago Accord, as of early 2026, has not materialized as a formal multilateral agreement. China has not signed anything. The geopolitical conditions that made the Plaza Accord possible—US allies bound by security dependence, a smaller and more manageable global currency market, a world in which five countries could coordinate the fate of global finance over a hotel luncheon—no longer exist. The 2025 foreign exchange market is orders of magnitude larger than it was in 1985. Private capital flows dwarf the reserves of any individual central bank. The ability of five or even 15 countries to coordinate a controlled currency depreciation is far more limited than it was.
But the forces that made the Plaza Accord necessary in 1985 have not gone away. They have grown. And the Trump administration’s instinct that the dollar is overvalued, that American industry has been hollowed out by the structural conditions of reserve currency status, that trading partners with large surpluses need to absorb more of the adjustment, is not obviously wrong as a diagnosis. It is the prescription that economists dispute, not the diagnosis. What is being played out in 2025 is something that looks less like a single clean Plaza Accord and more like a diffuse, chaotic, multi-front version of the same underlying impulse. Tariffs as leverage for currency adjustment, security guarantees as bargaining chips, technology controls as industrial policy, investment restrictions as competitive moats. The tools are different. The objective—to reduce the dollar’s dominance as a reserve currency to a level that makes American exports competitive again—is recognizably the same. Whether it works, and whether the countries caught in the crossfire of this adjustment experience something analogous to what Japan experienced after 1985, is something that will only be clear in retrospect.
But the people in Tokyo remember. The people in Beijing have studied it obsessively. And now you know it, too. The real warning from 1985 is not simply that the United States weaponized currency policy against an economic rival. It is that the world’s largest economic relationship between the US and its primary manufacturing challenger was recalibrated through financial engineering rather than productive transformation. And that the consequences played out over not one, but three lost decades, reshaping Japanese society, politics, and aspiration in ways that are still being felt today.
The question hanging over the current moment is whether we are watching a replay, a variation, or something new entirely. The pattern is familiar. The scale is larger. The opponents are more sophisticated. And the stakes—in a world where a trade war between the two largest economies can reverberate across supply chains, financial markets, and geopolitical alignments on every continent—are higher than they have ever been. History does not repeat itself exactly, but it does, with unsettling regularity, rhyme.
So here is the question I leave with you: if the Plaza Accord was the first domino that Japan never saw falling, what domino is being set up right now—and will China be the one to catch it, or will the rest of us?
