US dollar and Chinese yuan arranged for a photograph on September 7, 2017.

The Chinese yuan plunged against the U.S. dollar on Monday morning after U.S. President Donald Trump threatened increased tariffs on Chinese goods, surprising markets after weeks of talk that a trade deal was imminent.

The offshore Chinese yuan tumbled as much as 6.82 against the dollar in the morning, marking a drop of more than 1.4% from highs of around 6.72 last week.

The onshore yuan also dropped, to levels past 6.78, from around 6.73 last week.

Meanwhile, China's central bank lowered its official yuan midpoint to 6.7334 per dollar on Monday, the weakest level in two and a half months.

Trump said in a Sunday afternoon Twitter post that the current 10% tariffs on $200 billion worth of Chinese goods will rise to 25% on Friday. He also threatened to impose 25% levies on an additional $325 billion of Chinese goods "shortly."

The tariff rate on those goods was originally set at 10%. Trump had initially threatened to increase tariffs at the start of the year, but postponed that decision after China and the U.S. agreed to sit down for trade talks.

Sources told CNBC that China may back out of trade talks scheduled for this week. Chinese Vice Premier Liu He had planned to bring a large delegation to Washington on Wednesday to hash out a trade deal — and there'd been talk in recent days that a final deal could result.

William Ma, chief investment officer at Noah Holdings, told CNBC on Monday that the yuan could hit levels of 7 against the dollar.

"We think that short term volatility will continue and potentially it could touch 7 ... in the near term. But our view is this type of volatility could change overnight if the talks resume to the normal course."

If talks deteriorate, however, it could "trigger a correction" in markets, he said.

Andy Brenner, head of international fixed income at National Alliance Securities, said the yuan is "getting crushed."

"We expect the markets to come back some overnight, but it could be a messy opening in Europe," he told CNBC.

— CNBC's Eustance Huang and Patti Domm contributed to this report.