The U.S. Treasury Department says China will no longer be branded a currency manipulator.
That move on Monday (January 13) is seen as a symbol of goodwill as the two countries get ready to sign a trade deal.
Treasury Secretary Steven Mnuchin first slapped Beijing with the label back in August when trade tensions were soaring.
It was the first time the Treasury had done so in 25 years.
Mnuchin accused China of deliberately holding down the value of its currency to make its goods cheaper to sell overseas.
But according to the Treasury's latest report, China has made "enforceable commitments to refrain from competitive devaluation" It also noted that China's yuan currency has bounced back after hitting a low against the dollar in September.
China responded to the move on Tuesday (January 14).
Customs Vice Minister Zou Zhiwu.
(SOUNDBITE) (Mandarin) CHINA CUSTOMS VICE MINISTER, ZOU ZHIWU, SAYING: "Let me put it simply: it was the right choice and has positive implications for bilateral trade." But the Treasury's decision hasn't sat well with everyone.
According to some critics, China never should have got the label in the first place.
One former senior Treasury official said the decision was made "in a moment of presidential pique." But critics on the other side - like Senate Democratic leader Chuck Schumer - blasted the Trump administration for backing down.
In a statement, Schumer said, "Unfortunately, President Trump would rather cave to President Xi (Jinping) than stay tough on China." The world's two largest economies are getting ready to sign a deal to ease an 18 month-long trade war.
Chinese Vice Premier Liu He is in Washington ahead of the ceremony, set to take place on Wednesday (January 15).