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(CNN) —  

President Donald Trump’s trade war with China amplified one step further on Monday after his Treasury Department formally labeled the country’s second largest trading partner a “currency manipulator,” marking a tense standoff that risks weakening the entire global economy.

The escalating rift boiled over on Monday as Trump fulfilled his threat to fight back against China’s decision to allow its currency to weaken and to stop plans to buy more goods from American farmers.

The decision by Treasury Secretary Steven Mnuchin came after markets closed following a turbulent day on Wall Street, which suffered its worst day of the year with the Dow shedding 767 points over fears a resolution was nowhere in sight.

Earlier in the day, Trump had accused Beijing of depreciating its currency on Twitter, adding later that such measures have been used to “steal our business and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore!”

The People’s Bank of China allowed its currency to fall below 7 yuan to the American dollar, which is considered to be a psychologically important marker, for the first time in a decade. The move was seen as a retaliatory measure following Trump’s threat to slap a 10% tariff on $300 billion of Chinese goods.

The latest twist could very well unravel the strong economic growth that has been a highlight of the President’s sales pitch for his 2020 reelection.

Global growth has already showed signs of slowing as a result of the trade war and billions in tariffs, which have hurt American farmers and consumers, as the two sides have hardened their negotiation positions.

Beijing had been expected to retaliate following Trump threat to impose a 10% tariff on $300 billion of Chinese goods on September 1.

However, the latest round risks hitting Americans even harder. A new round of tariffs would tax goods like iPhones and other consumer electronics, sneakers and toys. Last year, Trump imposed tariffs on about $250 billion in Chinese-made goods, targeting industrial materials and parts.

Trump has repeatedly claimed falsely that the tariffs cost China rather than American consumers. Economic studies show that US consumers, not China or other foreign importers are bearing the weight of the duties.

Even the Federal Reserve has acknowledged the impact uncertainty of the Trump administration’s trade agenda has dampened global growth and impeded business investment.

Federal Reserve Chairman Jerome Powell last week blamed trade uncertainty, which he described as “disruptive,” as one of the reasons why the central bank cut interest rates by a quarter percentage point to a range between 2% and 2.25%.

The Fed has left the door open for further rate cuts, while also suggesting that it has not entered an extended period of lowering rates.

Trump tried again on Monday to exert pressure on the Fed to move even further in lowering rates.

“China dropped the price of their currency to an almost historic low,” Trump wrote on Twitter. “It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

Trump has repeatedly argued that the Chinese have depreciated their currency slowly in the last year to help offset tariffs on billions of dollars of Chinese goods amid an ongoing trade war between the two major economic superpowers.

Economists generally agree that the weaker currency – whether by design or not – has softened the blow of tariffs on China by making its goods cheaper. But it’s also raised the risk that the trade dispute could spiral into a currency war.

The People’s Bank of China Governor Yi Gang said in a statement Monday that China won’t use the yuan as a tool in its trade dispute with the US.

“I am fully confident than the yuan will remain a strong currency in spite of recent fluctuations amid external uncertainities,” Yi said.

CNN’s Katie Lobosco contributed to this report.