There's a problem with the Madman Theory. It doesn't work if people know you're using the Madman Theory. And so, if your partners suspect you might be using the Madman Theory, you have to ratchet up the "madness degree". To a point where it may become counterproductive.

This morning, an influential European observer wrote to us: "Trump's generalized use of tariffs are hurting his intent to use them to pressure us: 1) we don't understand what exactly his issue is or how to make things better; 2) we are going to be tariffed anyway, so why negotiate?"

With all that being said, we can state with relative confidence, mostly from thinking and reading, with a pinch of reporting, that There Is A Plan. Wags on X dot come have gone apoplectic about the seemingly arbitrary formula used to calculate tariffs (trade deficit divided by imports), but given strategic leaks from the White House and its allies, it seems clear to us that the arbitrarily high tariffs are part of the strategy, which is to bring trading partners to the negotiating table. Presumably, there are two goals, a more realistic goal and a "stretch" goal.

The realistic goal is to figure out some sort of tariff regime with (especially) China and the EU that these partners can live with that allows America to close its chronic trade deficit and reshore significant amounts of manufacturing.

The "stretch" goal, of course, would be something like the "Mar-a-Lago Accords," something like a great international agreement among the world's key trade blocs to manage trade and currency balances, in the way that the Bretton-Woods system did between 1946 and 1971; or, more conservatively, like the 1985 Plaza Accord where France, Japan, West Germany, the UK, and the US agreed collectively on a different currency regime.

In the scheme put forward by Stephen Miran, who is now Chairman of Trump's Council of Economic Advisers, the "Mar-a-Lago Accords" would also involve a restructuring of foreign-held US debt. Foreign governments holding US Treasury securities would be asked (or pressured) to convert their holdings to 100-year non-tradeable "century bonds". These would be zero-coupon bonds, meaning they wouldn't pay regular interest. Theoretically, this would reduce immediate interest payments on federal debt, which exceeded $1 trillion annually for the first time last year. It would also prevent foreign selling of US debt from driving up interest rates while preserving the dollar's status as a reserve currency. The tools that would persuade or compel foreign partners to agree to this scheme would be trade access and security protection.

People can make whatever of these plans. What's true is that the dollar's status as the reserve currency has structurally overvalued the dollar and thereby rendered American manufacturing uncompetitive, with implications both sociopolitical (in terms of middle class jobs, which in turns has implications for the political health of a democratic nations) and national security. Some sort of rebalancing is in order.

To circle back to the Madman Theory, Trump needs to show international partners that he's not bluffing about tariffs. As the kids say, "Let him cook."