U.S. stock markets fell over 2% Monday morning after China's central bank set the yuan’s daily reference rate below 7 per dollar for the first time in over a decade. The Chinese government has also asked its state-owned firms to suspend imports of U.S. agricultural products, according to Bloomberg.

The People’s Bank of China (PBOC), which sets the daily exchange rate range of the yuan, released a statement attributing the currency's current weakness to "unilateral and protectionist measures, as well as the expectation of additional tariffs on Chinese goods."

It can be assumed that China's move was in retaliation to the Trump administration threatening 10% tariffs on the remaining $300 billion of Chinese imports starting in September. Hopes that trade talks were progressing, albeit slowly, were dashed when the U.S. president complained on August 1 of Chinese leadership not delivering on promises it made during negotiations.

Possibly in anticipation of accusations of unfair currency manipulation, the central bank further pointed out in its statement that the yuan has strengthened 20% against the dollar over the past two decades. Devaluing the yuan makes Chinese exports cheaper and competitive to balance out the effect of tariffs. “The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the U.S.,” Julian Evans Pritchard of Capital Economics told The Guardian. He added that China has "effectively weaponized the exchange rate”

This is something U.S. officials have complained about before, but the current administration stopped short of officially labeling any country a currency manipulator in May. However, China and eight other countries are on a government monitoring list, and it remains to be seen how Trump will respond to today's news.

Global markets from Shanghai to Stockholm all fell in reaction to the latest escalation in the trade war and the uncertainties it brings.

China's Shanghai Composite Index and Shenzhen Composite Index closed 1.62% and 1.47% lower, respectively. Japan's Nikkei Index also ended the day 1.74% down. The Hang Seng Index of Hong Kong, a region racked by civil unrest, was almost 3% lower.

At 11:00 am ET, the DJIA had fallen 2.19%, the S&P500 fell 2.2% and the tech-heavy Nasdaq fell 2.9% in heavy trading.

Predictably, investors rushed to safe havens, causing the Japanese yen to soar and pushing gold prices to their highest level in six years. 10-year U.S. Treasury yields, which fell to their lowest since November 2016 after Trump's tweet on Thursday, dropped to around 1.76%.