The surprise threat, raising the prospect of all imports into the United States from China being hit with tariffs, also sent investors scrambling for the safe-haven yen, lifting it to a 16-month high against the dollar.
Trump said that a 10% tariff would be imposed on $300 billion worth of Chinese goods on Sept. 1 after US negotiators reported no progress during trade negotiations in Shanghai, with the US president saying China had failed to live up to promises made in previous talks.
Traders say the offshore yuan is likely to continue its decent towards the record low and key psychological level of 7 against the dollar if the trade dispute intensifies further.
The yuan was last down 0.2% at 6.9693 against the dollar after falling to 6.98, its weakest since January 2017.
The Japanese yen was up 0.5% at 106.82 against the dollar . It had earlier jumped to 106.76, its strongest since April 2018.
The Swiss franc, another currency widely viewed as a safe-haven, reached a two-year high of 1.0940 against the euro in mid-morning London trading.
The dollar did not benefit from the scramble for safety. Its index was last down 0.1% at 98.242, falling away from 26-month highs hit on Thursday before news of the tariff threat.
"I'm looking for the yuan to continue to move towards all time highs, but not yet seeing it through yet," said Neil Jones, head of European hedge fund sales at Mizuho.
Jones said he has seen more yen demand coming through, describing it as "a convenient hedge" against increased global risks sparked by US protectionism.
Sterling was hovering around the 30-month low it reached on Thursday, with the British currency last trading unchanged at $1.2126 and at 91.50 pence against the euro.
Most market participants remain wary of sterling, concerned that the chances of a disorderly Brexit grew after Boris Johnson took over as prime minister last month and after Britain's pro-European Union Liberal Democrats won a parliamentary seat from the governing Conservative party.
That defeat reduces Johnson's working majority in parliament to only one as he prepares for an expected showdown with lawmakers over his plan to take Britain out of the European Union on Oct. 31 without an exit agreement if necessary.
The euro was slightly lower at $1.1097, not far from the 26-month low hit the previous day.
Non-farm payrolls are due in the United States later in the day. Economists forecast a decrease in the number of jobs added to the economy, to 164,000 in July from 224,000 in June.
Responses to the jobs report are "skewed toward a bigger move to a weak report, given it would reinforce the increased global risk concerns", said Derek Halpenny, currency strategist at MUFG, after the escalation in the US-China trade war.