(CNN) - The Trump administration on Wednesday decided not to label China a currency manipulator despite the recent drop in the value of the yuan, once again deferring on a core 2016 campaign promise by President Donald Trump.
In the past six months, the yuan has dropped more than 9% against the US dollar. And there are growing signs that the country's currency may fall further to 7 yuan to the greenback — a threshold not crossed since before the 2008 financial crisis.
The yuan weakened following the US announcement. In morning trading Thursday in Asia, it hit its lowest level against the dollar since January 2017.
The yuan's sharp depreciation comes amid a trade war between Washington and Beijing and accusations from Trump that China is deliberately devaluing its currency — claims Beijing has repeatedly rejected.
Yet the Treasury Department in its twice-a-year report on foreign exchange found "limited" signs the People's Bank of China was actively devaluing its currency.
China's lack of transparency over its currency and recent weakness in the yuan are of "particular concern" for the United States, Treasury Secretary Steven Mnuchin said in a statement, noting the two issues "pose major challenges to achieving fairer and more balanced trade."
Mnuchin said the US government would continue to monitor China's currency and continue ongoing discussions with the Asian nation's central bank.
In its report, the US government noted that the recent depreciation of the yuan would "likely exacerbate" China's already large bilateral trade surplus of $390 billion with the United States over the past four quarters through June 2018.
"It is in China's interest to implement measures that would reduce the bilateral trade imbalance," the report warned.
The Trump administration has made currency issues part of its on-off trade negotiations with Beijing.
"We want to make sure that we don't have gains on trade issues only to be offset on currency issues," Mnuchin said in an interview with CNN on the sidelines of the International Monetary Fund's annual meeting in Bali, Indonesia.
The currency has been falling partly because of fears that the trade war will hurt the Chinese economy. A weaker yuan helps to offset the impact of tariffs by making Chinese exports cheaper.
The Trump administration has slapped new tariffs on Chinese goods worth hundreds of billions of dollars. It is seeking to gain an edge by upping pressure on China as it struggles with slowing economic growth and sharp declines in the country's stock markets.
China has retaliated with tariffs on a much smaller range of American products because it buys far less from the United States than it sells to it.
The United States also put five other trading partners on watch: Japan, Korea, Germany, Switzerland and India.
Presidents have often used the semiannual currency report as a diplomatic tool while engaging with countries that are seen as having exchange rate policies that harm US jobs and economic growth.
The United States hasn't labeled a country a currency manipulator since it tagged China in the early 1990s, under President Bill Clinton. Designating a country doesn't immediately trigger penalties, but is seen by other governments as a provocation.
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