Washington (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.

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