China says U.S. currency manipulator labeling could cause chaos in financial markets

China’s central bank said on Tuesday that Washington’s decision to label Beijing as a currency manipulator would “severely damage international financial order and cause chaos in financial markets”.

Washington’s decision to ratchet up currency tensions on Monday would also “prevent a global economic and trade recovery,” the People’s Bank of China (PBOC) said in the country’s first official response to the latest U.S. salvo in the two sides’ rapidly escalating trade war.

China “has not used and will not use the exchange rate as a tool to deal with trade disputes,” the PBOC said in a statement on its website.

“China advised the United States to rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path,” it said.

The U.S. currency accusation, which followed a sharp slide in the yuan on Monday, has driven an even bigger wedge between the world’s largest economies and crushed any lingering hopes for a quick resolution to their year-long trade war.

The dispute has already spread beyond tariffs to other areas such as technology, and analysts caution tit-for-tat measures could widen in scope and severity, weighing further on business confidence and global economic growth.

The U.S. Treasury Department said on Monday it had determined for the first time since 1994 that China was manipulating its currency, taking their trade dispute beyond tariffs.

The department referred to a PBOC statement on Monday as an open acknowledgement that it “has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis.”

The U.S. decision was driven purely by political motive to “vent its anger”, said Global Times, an influential Chinese tabloid published by the ruling Communist Party’s People’s Daily.

China “no longer expects goodwill from the United States”, Hu Xijin, the newspaper’s editor-in-chief, tweeted on Tuesday.

The U.S. decision to label China a manipulator came less than three weeks after the International Monetary Fund (IMF) said the yuan’s value was in line with China’s economic fundamentals, while the U.S. dollar was overvalued by 6% to 12%.

The U.S law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant trade surplus with the United States, and persistent one-way intervention in foreign exchange market.