Financial markets have been acting skittish since the Federal Reserve chairman, Jerome Powell, announced an interest rate cut last month even as he cast a hawkish outlook on future actions. While Mr. Powell insisted it was premature to assess the impact of President Trump’s policies, he nevertheless alluded to “tariff-driven inflation” and indicated that Fed officials were already discussing its potential economic impact and the appropriate policy response.

Yet the key to confronting our broken system of international trade — and seeking appropriate remedies — is to understand how central banks impact trade and investment flows through divergent monetary policy stances. In the absence of a stable monetary order, different interest-rate paths are a primary cause of exchange-rate shifts among the currencies of trade partners. This creates unfair trade advantages and exacerbates tensions leading to tariffs.