(Yicai) Dec. 30 -- The likelihood that China and the United States will make a new pact similar to the Plaza Accord of the 1980s to promote the appreciation of the yuan against the greenback while limiting China's exports to America is low.

Some market participants predict that the US is likely to take measures similar to the Plaza Accord amid the rising odds of escalating trade tensions between China and the US with Donald Trump's second term in the White House.

The Plaza Accord, co-signed by the US, Japan, West Germany, France, and the United Kingdom in 1985, was a pact that helped reduce the value of the strong US dollar against other major currencies, aiming to cut America's high fiscal and trade deficits. The accord led to the appreciation of the Japanese yen against the greenback, severely weakening Japan's export competitiveness, which led the Asian country into a long-term stagnation known as the "Lost Decade."

I think the Trump administration will not seek to sign a new Plaza Accord, and there are three reasons for that:

First, the Trump administration cannot form a weak US dollar policy at will. Under the dollar-based international monetary system, the US does not have an independent exchange rate policy, and a strong or weak US dollar is the result of the implementation of domestic economic policies rather than the goal.

The US Dollar Index fell to about 90 from about 100 during Trump's first term, but this was not the intention of the Trump administration but rather a result of a series of macroeconomic factors. One of the factors was the adoption of large-scale fiscal and monetary policies to stimulate the economy and fight a recession amid the Covid-19 pandemic, leading to a softer US dollar.

In the Trump 2.0 era, the US government may slash taxes, add tariffs, and tighten migration policies. These policies would enhance the persistence of inflation, slowing the Federal Reserve's rate cuts. Besides, trade frictions could turn up the heat on risk aversion, which is likely to push up the US Dollar Index.

Secondly, the US may not want to voluntarily give up a firm greenback. Scott Bessent, Trump's pick for Treasury secretary, is a hedge fund manager from Wall Street, and he prefers a strong US dollar. The US Fed is also likely to favor a robust US dollar because it would help lessen the impact of tariff additions on inflation.

Lastly, the international situation is totally different from that of 40 years ago. Part of the reason why the Plaza Accord could be fulfilled was that Japan voluntarily cooperated with the economic rebalancing strategy of the US to make the yen appreciate. In comparison, the Chinese yuan has kept its trend of two-way fluctuations after the implementation of the 2015 exchange rate reform, and China's central bank is not motivated to proactively intervene in the exchange rate.

Despite the absence of a new Plaza Accord, it is still possible for the redback to usher in appreciation under certain circumstances. For example, the tariff policies that the Trump administration may adopt could fall short of expectations. Alternatively, China's exports could turn out to be better than expected next year as the nation and the US actively hold dialogue to solve economic and trade disputes, and this would support the yuan's exchange rate.

Moreover, the Chinese government has made it clear that it will enhance its anti-cyclical adjustment policies next year. If these policies gradually improve domestic demand, support price recovery, and drive a rebound in asset prices, the yuan's exchange rate will also be supported.

The author is the chief global economist at Bank of China International Securities Holdings.

Editors: Dou Shicong, Emmi Laine