The yuan has weakened by about 10 percent against the U.S. dollar in the past 17 months as investors lost confidence due to a prolonged economic slowdown and delays in implementing market reforms. Beijing has been trying to keep the yuan high, imposing administrative curbs to check capital outflows and depleting its huge foreign reserves.
Renmin University finance professor Zhao Xijun said China would follow the path it had designed to currency regime reform and "definitely say no" to being designated a manipulator.
"Related departments are gearing up for possible bilateral communications, negotiations and investigations which are expected to accompany the accusation if it would happen," he said. "Also, they are prepared for a trade war if that's inevitable."
Scott Kennedy, director of the project on Chinese business and political economy at the Centre for Strategic and International Studies in Washington, said: "At this stage, the purpose of all the bluster and talk is trying to avoid a trade war, to show the U.S. means what it says and the threat is genuine. However, it depends on how China will respond.
"If China were not to address its foreign exchange rate, distortion of its domestic economy or liberalise the economy to embrace further investment, then I think the probability of penalties of one sort or another is highly likely.
"It looks like a trade war in inevitable. But it's extremely dangerous on both sides, particularly on the China side, if a trade war does break out."
That was because China's economy was "far more dependent" on the bilateral relationship than the other way around, he said, and China's economy was "much more fragile" than the U.S. economy.
Ricard Torne, senior economist at FocusEconomics in Barcelona, said labeling China a currency manipulator would add downward pressure on the yuan, mainly via two different channels.
"Any severe trade disruption would prompt the Chinese authorities to boost their pro-growth policies, which would certainly include a weaker renminbi (yuan)," he said. "Political and economic uncertainties will likely encourage further capital outflows, hurting the value of the Chinese currency."
Against that backdrop, FocusEconomics expects the yuan to trade at 7.12 yuanper U.S. dollar by the end of this year and to depreciate further to 7.30 yuan next year.
On Tuesday, the first trading day of 2017, the People's Bank of China fixed the yuan midpoint at 6.9498 per U.S. dollar. It was the first fixing since a change to the composition of the currency basket used to determine the yuan's value which reduced the U.S. dollar's weighting from 26.4 percent to 22.4 percent.
The Chinese leadership's emphasis on structural reforms and boosting domestic demand at last month's central economic work conference, an annual even that sets economic priorities for the following year, underscored the realization that the road ahead could be rocky if U.S. ties soured, economists said.
At the conference, the top leadership set "progress amid stability" as the guiding principle for economic work this year. The emphasis shifted to "stability is the main theme" last year, after a flirtation with "development is the No 1 task" in 2015.
This month's presidential transition in the U.S. and the shake-up in the upper echelon of the Communist Party expected at its national congress later in the year increased the likelihood of an "economically damaging geopolitical misstep", ING's chief Asia economist, Tim Condon, wrote in a research note.