• The Treasury Department on Monday formally accused China of manipulating its currency, escalating trade tensions between the world’s two biggest economies. 
  • The move came after the Chinese government lowered the value of the yuan in response to President Donald Trump’s threat last week to impose new tariffs on China.
  • Benchmark U.S. stock indexes suffered their biggest loss of the year amid fading hopes for a U.S.-China trade deal.

Washington — The U.S. Treasury Department labeled China a currency manipulator Monday after Beijing pushed down the value of the yuan in a dramatic escalation of the trade conflict between the world’s two biggest economies.

The decision, which came hours after President Donald Trump accused China of unfairly devaluing its currency, marks a reversal for Treasury: In May, it had declined to sanction China for manipulating its currency. The U.S. has not put China on the currency blacklist since 1994.

“China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market,” the Treasury Department said in a news release after financial markets closed. “In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past.”

The agency said this “pattern” of intervention violates China’s commitment under the G20, a global forum for the world’s largest economies, to refrain from devaluing its currency to boost its economy at the expense of other nations.

The designation could pave the way for more U.S. sanctions against China. Earlier Monday, China had allowed its currency to weaken to an 11-year low, a move that gives its exporters a price edge in world markets and eases some of the damage from U.S. tariffs on Chinese products.

China trade war backfiring on U.S., says former Trump adviser Gary Cohn

Mr. Trump rebuked China for letting its currency sink, calling it a “major violation.” Last week, he said the U.S. would levy a 10% tariff on $300 billion in Chinese imports by Sept. 1 unless the countries made progress on trade talks. 

Stocks on Monday suffered their biggest one-day loss of 2019 amid fading investor hopes for a swift end to the trade fight that has roiled relations between the U.S. and China since last year. All three benchmark U.S.  indexes lost close to 3%, with the Dow losing 767 points to close at 25,717.

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