Will the mandarins at Beijing weaponize its renminbi in response to President Trump’s tariff threats? That’s the poser from the Times, which reports that “a currency war” could be started by Communist China. Lowering the cost of Chinese exports would be a “powerful tool,” the Times says, against Trump’s envisioned tariffs. It discloses a weakness of the fiat money system: The ability of nations, absent any link to gold, to manipulate their currencies.

Beijing’s move could “partly or entirely offset the effects of the extra 10 percent tariff on Chinese goods that Mr. Trump said on Monday he would order on his first day in office,” the Times avers. Allowing the renminbi to “lose value against the dollar would be a tried and true answer to tariffs,” the Times says. It wouldn’t be the first time, either. “Beijing did just that in 2018 and 2019, when Mr. Trump imposed tariffs in his first term,” the Times reminds. 

“China has a long history of facilitating an undervalued currency,” America’s Treasury department warned in 2019 during Trump’s first term. The tactic involves “protracted, large-scale intervention in the foreign exchange market,” Treasury said. The communist central bank, the People’s Bank of China, “has extensive experience manipulating its currency,” despite Beijing’s vow to the G20 to eschew the practice, concluded the Treasury department.

Currency manipulation is one of the schemes, along with huge subsidies of state industries, that Beijing has used to fuel its economic rise against Western rivals after the communist regime gained entry into the global trade network. It was allowed into the World Trade Organization under preferential terms based on Beijing’s claim that it was a “developing country.” It led to the “China Shock,” the loss of millions of our manufacturing jobs.

A new round of what the Times calls “strategic devaluation” by China could foreseeably kneecap Trump’s attempt to revive domestic manufacturing just as his second term is getting under way. The move “could allow Beijing to supercharge its powerful export machine,” the Times warns. China’s exports already soared some 12 percent so far this year over 2023, the Times says, and it’s “poised for further gains.”

This is not to say that a currency war would be without risks for China. It “could endanger the country’s economy,” the Times cautions. With the renminbi weaker, “Chinese companies and affluent families might rush to shift money out of the country,” stifling domestic investment. It could also “hurt the Chinese public’s confidence,” the Times reports, “undermine consumer spending, and erode share prices.”

A Chinese devaluation could, too, prompt Trump to raise tariffs beyond even the levels he initially proposed. More broadly, though, the prospect of a currency war with China highlights how the abandonment of an honest dollar has exposed America to economic threats from our rivals. Under a true gold standard, in which currencies are defined by law in terms of a fixed weight of gold, the manipulation of money is much harder to achieve. 

That reflects the fact that gold or silver, historically, has been the basis of monetary value. Until America severed the dollar’s last link to the gold standard, a greenback was convertible to the monetary metal at the rate of a 35th of an ounce. Since then the dollar’s value has plummeted to less than a 2,600th of an ounce of gold. The huge run-up in debt — and the accompanying asset bubble — are symptoms of this debasement of the currency. 

Even under Bretton Woods, a flawed attempt to restore the pre-World War I gold standard, currencies were defined in gold, spurring decades of growth and low inflation. Severing the link to gold led to gyrations as nations manipulate the value of their fiat currencies. That’s what Beijing seems to be weighing as a way to dodge Trump’s attempt to hold China accountable. The best way for America to parry this threat is a shield of gold — restoring honest money.