Can the West force China into a new Plaza Accord?

(Edited and refined by Candice Chan, with the assistance of AI translation.)

International debate over China’s trade surplus and the RMB exchange rate has intensified in recent weeks, reviving calls in Western policy circles for a “new Plaza Accord” aimed at the Chinese currency.

The Wall Street Journal published an article arguing that today, the world needs another Plaza Accord, this one not to bring down an overvalued dollar but to push up China’s undervalued RMB. It added that China’s massive and growing trade surplus threatens to hollow out its trading partners’ industrial bases, and that for years, the rest of the world has pleaded with China to change its economic model to rely more on domestic demand and less on exports, to no avail.

The article therefore argued: “A currency accord, enforced with tariffs, might be the only way to get China to act.”

It also said the time may be ripe, because frustration with China is boiling over, especially in Europe. A French government report in February this year suggested that the euro could be allowed to depreciate by 20 to 30% against the RMB. In June, German Chancellor Friedrich Merz also called for a new Plaza Accord aimed at China, saying the RMB was undervalued by 30%.

China pushes back on a new Plaza Accord

US Treasury Secretary Scott Bessent, while stressing that “the world cannot have a China with a US$1.2 trillion trade surplus”, does not favour a new Plaza Accord as the solution. In his view, RMB appreciation alone cannot correct global imbalances. Instead, attention should be focused on structural problems such as industrial subsidies, excessive reliance on exports and weak domestic demand, with trade policy used to encourage China to boost domestic consumption.

Global trade imbalances were a key focus of negotiations at this week’s G20 finance ministers’ meeting in North Carolina. Differences between China and other members over language concerning “non-market policies”, excessive exports and industrial subsidies ultimately scuppered efforts to issue a joint communiqué. Bessent said all 19 members other than China, including Russia, supported the proposed wording.

This “19-to-one” alignment suggests that the US is seeking to shift criticism of China’s trade model beyond the confines of a bilateral trade dispute and into the broader debate over global trade imbalances. Although a new Plaza Accord is neither established US policy nor the subject of any international consensus, tensions over China’s trade surplus, industrial policies and exchange-rate regime are clearly intensifying.

After Japan signed the Plaza Accord in 1985, the yen appreciated sharply, followed by an asset bubble and then a prolonged economic downturn after the bubble burst. Although Japan’s long period of stagnation was the result of multiple factors, the experience has made the Plaza Accord a very politically sensitive subject in China.

An article in Study Times, the newspaper of the Central Party School of the Communist Party of China, said while the Plaza Accord ostensibly sought to correct exchange-rate imbalances, it was in essence a strategic move by the US to use exchange-rate adjustments to shift the burden of its domestic economic problems elsewhere and reassert its dominance over the international economy, against the backdrop of shifting economic strength between Japan and the US.

An editorial in the Global Times was more blunt: “The call to repeat the ‘Plaza Accord’ is, in essence, not an economic solution but a form of political pressure.” It stressed that China will not accept using exchange rates as a pretext for oppression, arguing: “The enhanced competitiveness of Chinese enterprises arises from a comprehensive industrial system, sustained investment in technology, a massive market, and robust market competition — not from the so-called ‘artificially manipulated’ exchange rates.”

This is 2026, not 1985

But given today’s economic realities, could the 1985 Plaza Accord really be replicated?

Capital markets are vastly larger and money moves far more quickly than it did four decades ago, significantly reducing the ability of a small group of central banks to move currency markets through coordinated intervention.

Nor is China the Japan of the 1980s. China has vast foreign exchange reserves, a comprehensive manufacturing base and a diverse range of trading partners, while its capital account remains only partially open. Any attempt to engineer a substantial appreciation of the RMB through an international agreement would not only require China’s cooperation but would also have implications for trade, capital flows, monetary policy and global supply chains. Implementing such an agreement would therefore be far more difficult than it was 40 years ago.

The 1985 Plaza Accord was possible partly because the major economies involved — including the US, Japan, Germany, France and Britain — had a relatively strong foundation for policy coordination. Today, by contrast, China and the US are locked in intense strategic competition. The US is also running a large fiscal deficit of its own. If the burden of adjustment were placed primarily on surplus countries while the US made only limited changes to its fiscal and consumption patterns, the effectiveness of any new agreement would inevitably be constrained.

Pressure on China

With domestic demand weak and the property sector still undergoing adjustment, exports have become a crucial pillar of China’s economy. Beijing is therefore unlikely to readily accept external pressure for a sharp appreciation of the RMB, as doing so would have direct implications for China’s current growth model and the economic costs of restructuring it.

The renewed debate over the RMB, China’s trade surplus and economic rebalancing comes as Beijing and Washington prepare for a leaders’ meeting this month. Although the exchange rate has not emerged as a central issue in formal China-US negotiations, and Bessent does not advocate a new Plaza Accord as a solution to trade imbalances, China’s trade surplus, industrial subsidies, reliance on exports and the need to expand domestic demand have become key areas in which the US is pressing Beijing to adjust its economic model.

Whether the RMB exchange rate moves further up the agenda in China-US economic and trade negotiations, and whether Europe continues to press the currency issue, will be among the factors shaping the next phase of the contest.

The debate over a new Plaza Accord, then, is less about laying the groundwork for an international agreement modelled on the one signed in 1985 than about a battle of narratives over China’s trade surplus and economic rebalancing. With the global economic landscape transformed beyond recognition over the past four decades, the heart of the dispute may no longer be a single agreement. Rather, both the US and Europe are finding the pronounced imbalance in their trade with China increasingly difficult to accept, and see a stronger RMB as one possible solution.

China, however, is equally unlikely to surrender control over its exchange rate or the pace and direction of its economic restructuring. The eventual outcome will depend on the balance of economic power between the two sides, changes in underlying conditions, and whether either can persuade the other of one fundamental proposition: that the status quo is no longer sustainable.

This article was first published in Lianhe Zaobao as “针对人民币的“新广场协议”呼声再起”.

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