BEIJING — The trade war between the United States and China may be about to enter a more dangerous phase, one that could saddle the global financial system with new risks at an already turbulent time.
That prospect, which would see Beijing using the value of its currency as a weapon to strike back at the Trump administration, shook world markets on Monday, as nervous investors in Asia and Europe looked for safe places to park their money. Futures markets suggested Wall Street could have a tough opening as well.
The question now is whether Beijing will fully weaponize its currency, allowing it to significantly weaken in value versus the American dollar. That could prompt a harsh response from Trump administration officials who have already warned China against that course.
It could also ripple across the globe, forcing countries that compete with China to consider devaluing their own currencies. That could lead to a zero-sum spiral of devaluations that would damage global growth and lead to even more trade protectionism, threatening the world’s economic integration.
“It’s hugely significant as they are making a clear choice to do this,” said Michael Every, head of financial markets research in Asia for Rabobank, referring to China’s central bank. “This is going to escalate rapidly and badly.”
China’s currency has a way to fall before it would be an effective weapon. But on Monday, Beijing hinted that it might be willing to go there.
The People’s Bank of China, the country’s central bank, allowed its tightly controlled currency, the renminbi, to weaken past a psychologically important point of 7 renminbi to the American dollar for the first time since 2008. The move was widely seen as a signal from Beijing that it would not back down from a fight with Mr. Trump. Just days before, Mr. Trump threatened to impose a new round of tariffs on Chinese imports to force it into striking a deal.
Over all, the renminbi weakened by around 1 percent against the dollar, a move that is not necessarily significant on its own. But the fact that Beijing allowed it to breach a level that was long considered a line in the sand raised questions about whether the Chinese government was doubling down or abandoning any hope for a deal in the near term.
In an unusually blunt statement on Monday, the People’s Bank of China blamed the currency fall on Mr. Trump’s “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.”
The central bank also said it would keep the renminbi “fundamentally stable at a reasonable and balanced level.” But it did not specify what that level would be.
Experts saw the move as a deliberate threat from China’s top leaders, who would most likely have to give permission to the central bank to let its currency fall past such a symbolically fraught level.
“The currency is largely controlled by the P.B.O.C., but the P.B.O.C. does not have the independence to decide on its own the level of the renminbi,” said Michael Pettis, a professor of finance at the Guanghua School of Management at Peking University, referring to the central bank. “This was clearly a decision made higher up.”
The Chinese currency’s fall on Monday reverberated through global markets, sending major indexes in Asia down by about 2 percent or more. European markets opened with a similarly wide sell-off. Currencies, already trading weaker against the American dollar after the Federal Reserve cut rates for the first time in a decade, fell further.
The escalating trade war already threatens to end what had looked to be a modest global expansion. The American economy appears to be growing at a healthy clip and Europe is showing signs of renewal. But China’s growth has been hit by the trade war, which has compounded some of its homegrown problems. Other countries that depend on China’s voracious economic machine, such as Japan, have been hit as well.
A currency war could intensify that damage.
Countries with weaker currencies can enjoy big advantages when selling their goods somewhere else. It can help them cut prices or be more competitive than rivals in countries with strong currencies. Mr. Trump and a number of American lawmakers have long criticized China for taking that tack with its currency, something Beijing has consistently denied.
If China devalues its currency even more, countries that compete in similar industries, like South Korea or the nations of Southeast Asia, could face pressure to devalue their own currencies. Such devaluation spirals can lead to higher inflation, pinched household spending and disruptive shifts of money across borders. They can also lead to more tariffs or other restrictive trade measures.
A significant devaluation could also hurt China itself. Many of its biggest and most indebted companies in sectors ranging from property to heavy industry have borrowed huge amounts oversees in American dollars. A weaker renminbi makes paying that debt back more expensive. It could also hurt companies that depend on commodities, such as oil, that are priced in dollars, and could spur wealthy Chinese to take their money out of the country.
For those reasons, devaluations make investors nervous. Four years ago, when China devalued its currency by a more drastic amount, a global market rout followed.
This time, the immediate threat is how Mr. Trump may respond.
A devaluation helps to blunt the cost of his tariffs. Mr. Trump’s latest threat of an additional 10 percent on $300 billion of Chinese imports a year would broadly have the same effect as a 1 to 1.5 percent appreciation of the renminbi against the dollar, estimated Professor Pettis of Peking University. To offset those tariffs, the professor added, China could allow its currency to depreciate by a similar level.
That might only lead to Mr. Trump putting more or higher tariffs on Chinese-made goods, which could prompt even more retaliation from Beijing, said Ned Rumpeltin, head of European currency strategy with TD Securities.
“I think that we are in a very much tit-for-tat situation,” he said.