It’s easy to blame foreigners; it always has been. In the 1980s, it was Japan that was the rising Asian threat. They bought our real estate and our bonds, and they were about to take over the rest of America, and eventually the world. But as it turned out, they didn’t. Despite their favorable balance of trade with America, and their large stake in American stocks and bonds, the much-ballyhooed takeover never occurred. Japan Inc. became Japan Sink as the island nation sunk into more than a decade of stagnation.

Next came China. History didn’t repeat itself, but it did rhyme. Instead of the Japanese buying Rockefeller Center, we recently had the Chinese threatening to buy Maytag and Unocal. In both cases, doom saying and protectionism came tinged with a slight whiff of xenophobia. In the 1980s, anti-trade forces pushed for a devaluation of the dollar against the yen; in recent years, they pushed for a devaluation of the dollar against the yuan. They were wrong in the 1980s, and they are wrong now. Nevertheless, they just won their first major policy victory.

On Thursday, the Chinese government announced that it would be changing its policy, so as to break the “peg” between their yuan and our dollar. Clearly, this was our idea, not theirs. The administration had an anti-peg policy going back to Treasury Secretary O’Neill’s days, and the drumbeat had been growing increasingly loud in recent months. This week, the Chinese central bank finally caved. This decision is bad for commerce, bad for growth, and bad for both countries.

The reason is that it is the necessary first step to a protectionist tactic called “competitive devaluation.” This policy demands that America print more dollars than it really needs, in order to drive down the value of our currency to make our goods easier to purchase by foreign consumers. If foreign consumers can buy more dollars with their euros/yen/yuan, then presumably that means they’ll find our goods cheaper to buy. Abandoning the ancient principle of “just weights and measures,” the American government places its thumb on the scale, tipping it to the advantage of exporters and against the interests of consumers.

Competitive devaluation had been impossible with China while its currency was pegged to the dollar, because being “pegged” means their policy was to increase and decrease their currency at the same rate as the dollar. Competitive devaluation is impossible if the country we’re trying to compete with devalues its own currency right along with us. Now the peg has been broken and we’re both free to fluctuate our currency values at will to serve whichever domestic interest groups are in favor at any given time. The market’s reaction on Thursday, a fall in the dollar relative to the yuan, and a sell-off in inflation-sensitive 10-year bonds, is consistent with the belief that the anti-free-trade crowd are the ones who came out on top this week. Right now, that means Senators “Smoot” Schumer and “Hawley” Graham, as more and more commentators are referring to them, stand in the way of trade.

It’s time for the administration to stop and look around. The trade deficit is shrinking, the economy is creating jobs at a rapid pace, and Federal Reserve tightening has finally restored a sound dollar around the world. We don’t need currency tricks to grow the economy, and the specter of creeping inflation shows us that we shouldn’t risk these tricks even if we did need them. Having implemented supply-side tax cuts and supply-side currency tightening, our leaders should realize that China is no more a threat to us now than Japan was in the 1980s.

It would be inaccurate to suggest that Thursday’s decision is the end of the world. The Fed has certainly not signaled any willingness to play along with a weakening of the dollar, and the Red Chinese central bank indicates that it will be pegging to a basket of foreign countries. Still, the Chicom government has stepped out onto a slippery slope, so everyone will need to be more careful as we enter a new and dangerous phase.

Mr. Bowyer is a radio and television talk show host, an adviser to Independence Portfolio Partners, and the author of “The Bush Boom: How a ‘Misunderestimated’ President Fixed Our Broken Economy.”