The prospect of a trade war also rattled Australian investors, although the S & P/ASX200 index gained steam in afternoon trade to close 2 points,or 0.03 per cent. lower at 6102.1. The Australian dollar, meanwhile, dropped about 80 basis points to a one-year low of around US73.55 cents, before recovering slightly in late local trade.

"While the tariffs are unlikely to materially threaten either of the world's two biggest economies or overall corporate credit health within them, the imposition of tariffs heightens the risk of an all-out trade war," a report by ratings agency Standard & Poor's published on Tuesday warned.

" A breakdown in negotiations or policy missteps could lead to a full-blown dispute that could damage global business and consumer confidence, investment prospects, and growth."

Stock futures fell in after-hours trading in New York on Monday night (Tuesday AEST).

Shipping containers stand in a terminal at the Yangshan Deep Water Port in Shanghai, China amid escalating trade-war tensions. QILAI SHEN

"This kind of extra pressure and extortion is against the agreements we reached before and also lets down the international community," China's Commerce Ministry said in a statement on Tuesday. "China will take strong and forceful countermeasures," it said, without giving details.

Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Centre for Strategic and International Studies in Washington, said President Trump had essentially threatened an "embargo" on US-China trade.

"If the US were to implement tariffs of that size, it would essentially bring the commercial US-China relationship to a halt and be highly disruptive to global trade," said Mr Kennedy, who remained cautiously hopeful of an eventual de-escalation.


The White House issued a late-evening statement from President Trump, declaring China "apparently" had no intention of changing its "unfair" acquisition of intellectual property (IP) and technology.

"Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong," Mr Trump said, referring to China's retaliatory tariffs on items such as soybeans, electric cars, whisky and seafood.

"This is unacceptable. Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States."

The aggressive move puts pressure on China to react. Beijing has previously vowed to retaliate with similar-sized punishments against Mr Trump's protectionism.

Mr Trump is under pressure from Congress to take a hard line against China and he issued the latest threat soon after being rebuked by Democrats and Republicans for going soft on China.

The Senate voted on Monday (Tuesday AEST) to override the Trump administration's reduction of crippling financial penalties against corrupt Chinese telecommunications company, ZTE Corp.

"Domestic politics is forcing Trump to up the ante," Mr Kennedy said.

President Trump ordered US Trade Representative Robert Lighthizer to identify $US200 billion worth of Chinese goods for additional tariffs at a rate of 10 per cent.


The White House said after the legal process - which would likely take months - the tariffs would take effect if China refuses to change its behaviour and if it insists on imposing tariffs on $US50 billion of US imports announced last week.

"If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $US200 billion of goods," President Trump said, noting his "excellent" relationship with President Xi Jinping.

"But the United States will no longer be taken advantage of on trade by China and other countries in the world."

The reciprocal tariffs on $US50 billion of merchandise are due to begin on July 6. The US Treasury is also scheduled to release a list of restrictions on Chinese investment by the end of July.

The US government is frustrated with a $US376 billion trade deficit in goods with China, as well as China's alleged pilfering of intellectual property and technology from American companies operating in Asia's largest economy.

The US grievances extend to forced technology transfer from advanced-tech US firms, cyber theft attacks and investment restrictions that prevent American corporations competing on a level playing field.

China's state-subsidised "Made in China 2025" industrial program has also upset the US. Beijing is pouring tens of billions of dollars into advanced-tech such as robotics, artificial intelligence, super-fast quantum computing, aerospace, energy saving vehicles and medical devices.

Not only is the Trump administration concerned that Beijing's conduct will give China an economic advantage over the US, but it also worried that China's advanced tech advancements will pose a national security risk from its No. 1 geopolitical rival.


Secretary of State Mike Pompeo said in a speech in Detroit that China's claim of economic openness and globalisation was a "joke".

"It's the most predatory economic government that operates against the rest of the world today. This is a problem that's long overdue in being tackled," Mr Pompeo said.

Secretary Pompeo had reportedly previously urged President Trump to defer any harsh trade actions against China, to avoid annoying Beijing before the historic summit between its estranged ally, North Korea, and the US in Singapore last week.

Joshua Meltzer, a senior fellow at the Brookings Institution think tank in Washington and a former Australian trade diplomat, said President Trump had "upped the ante" against China.

"It is not surprising and he clearly believes the US is in a stronger position because the US imports more than it exports," Dr Meltzer said.

"But the tariffs won't come into effect immediately so there is an opportunity to reach a negotiated outcome."

The latest threats to China follow the imposition by President Trump of steel and aluminium tariffs against traditional US allies and partners including Canada, Europe, Mexico and Japan.