United States President Donald Trump has escalated his trade war with China, raising retaliatory tariffs and ordering American companies to consider alternatives to doing business there.

Key points: Wall Street stocks tumbled after Mr Trump tweeted US companies in China should come home

Wall Street stocks tumbled after Mr Trump tweeted US companies in China should come home The comments came after China announced 10 per cent and 5 per cent tariffs on US goods

The comments came after China announced 10 per cent and 5 per cent tariffs on US goods The US plans to impose 10 per cent tariffs on Chinese goods commencing on the same dates

In a tit-for-tat trade battle between the two countries, China announced new tariffs on $US75 billion of US products, deepening a conflict over trade and technology that threatens to tip a weakening global economy into recession.

Mr Trump responded by heaping an additional 5 per cent duty on $US550 billion ($814 billion) in targeted Chinese goods.

"Sadly, past administrations have allowed China to get so far ahead of fair and balanced trade that it has become a great burden to the American Taxpayer," Mr Trump tweeted.

"As President, I can no longer allow this to happen! In the spirit of achieving fair trade, we must balance this very unfair Trading relationship."

Earlier, Mr Trump tweeted: "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing … your companies HOME and making your products in the USA. I will be responding to China's Tariffs this afternoon."

It is unclear what legal authority Mr Trump would be able to use to compel US companies to close operations in China or stop sourcing products from the country.

Mr Trump has already imposed 25 per cent tariffs on $US250 billion of Chinese products. ( Reuters: Kevin Lamarque )

Experts said he could invoke the International Emergency Economic Powers Act used in the past for sanctions on Iran and North Korea, or cut offending companies out of federal procurement contracts.

Mr Trump raised this option on Twitter.

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The US Chamber of Commerce rebuffed Mr Trump's call, urging "continued, constructive engagement".

"Time is of the essence. We do not want to see a further deterioration of US-China relations," Myron Brilliant, executive vice-president and head of the business group's international affairs, said in a statement.

Small business owners were baffled by Mr Trump's orders, with the National Retail Federation saying it would be unrealistic for US retailers to exit China.

Trade associations representing auto companies said the escalating tariff fight was bad for the US auto industry.

Markets in the Asia, Europe and the US tumbled after Mr Trump's statements, the Dow Jones sinking 623 points, or 2.4 per cent.

Federal Treasurer Josh Frydenberg said Australia continued to feel the impact of the trade war between the two nations.

"We're already starting to see a downgrade in the global economic outlook — both the IMF (International Monetary Fund) and the OECD (Organisation for Economic Co-operation and Development) have downgraded their numbers as a result of these tensions," he said.

"Capital inflows have been reduced, investment decisions have been deferred and when it comes to trade volumes which were up more than 5 per cent just a couple years ago, they've been coming down quite dramatically.

"When you have trade tensions between the two big players — the United States and China — it's not just the protagonists who are affected, but it's the bystanders as well.

"So Australia's national interest here is very clear. It's in China and the US coming to the negotiating table, being able to resolve their differences."

US raises tariffs in tit-for-tat response

In a series of tweets on Friday morning, Mr Trump promised action against China.

By Friday afternoon he tweeted the US would raise its existing tariffs on US$250 billion worth of Chinese imports to 30 per cent from the current 25 per cent, beginning on October 1.

At the same time, Mr Trump announced an increase in planned tariffs on the remaining US$300 billion worth of Chinese goods to 15 per cent from 10 per cent.

The US will begin imposing those tariffs on some products starting September 1, but tariffs on about half of those goods have been delayed until December 15.

The US had initially planned to impose 10 per cent tariffs on $US300 billion ($444 billion) of Chinese goods in two steps, on September 1 and December 15.

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Mr Trump's tariff response was announced after markets closed on Friday, leaving potentially more damage for next week.

While US business groups reacted angrily to the new tariff hike.

"It's impossible for businesses to plan for the future in this type of environment. The administration's approach clearly isn't working, and the answer isn't more taxes on American businesses and consumers. Where does this end?" said David French, a senior vice-president for the National Retail Federation.

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Mr Trump's announcement, which comes as leaders of the Group of 7 major economies prepare to meet in France this weekend, fits a pattern of swift retaliation since the trade dispute with China started more than a year ago.

"He decided he wanted to respond. He was given a few different options on things he could do and ultimately that was what he decided," a senior White House official said of an Oval Office meeting the President had with advisers.

"He's not taking this stuff lightly, but he's in a fine mood and looking forward to the G7."

Another person familiar with the matter said officials had to scramble to come up with options after Mr Trump caught them off-guard with tweets promising a response Friday afternoon.

Earlier on Friday, China's Commerce Ministry said the country would impose additional tariffs of 5 per cent or 10 per cent on a total of 5,078 products originating from the US and reinstitute tariffs of 25 per cent on cars and 5 per cent on auto parts suspended last December.

It is unclear whether a new round of talks between the US and China, expected next month, will go ahead.

The Dow Jones sunk nearly 623 points after Mr Trump's tweets. ( AP: Richard Drew, File )

Mr Trump also said he was "ordering" US postal companies UPS, Federal Express and Amazon to block any deliveries from China of the powerful opioid drug fentanyl.

The stocks of all three companies fell as traders tried to understand the implications.

Trump launches attack on Federal Reserve chairman

Mr Trump also tweeted a furious and highly personal attack against the Federal Reserve and chairman Jerome Powell, fuming that the Fed "did NOTHING!" and wondering who is "our bigger enemy" — Mr Powell or China's leader.

The outburst came after Mr Powell, speaking to central bankers in Jackson Hole, Wyoming, gave vague assurances that the Fed "will act as appropriate" to sustain the nation's economic expansion.

Mr Trump attacked Federal Reserve chairman Jerome Powell on Twitter. ( Reuters: Carlos Barria )

While the phrasing was widely seen as meaning interest rate cuts, he offered no hint of whether or how many reductions might be coming for the rest of the year.

Mr Powell had barely finished speaking before Mr Trump escalated his criticism of the Fed, which he has repeatedly accused of keeping rates too high.

For months, the President has in particular ridiculed Mr Powell, who was his own choice to lead the Fed, an independent agency.

"As usual, the Fed did NOTHING!" Trump tweeted, adding, "We have a very strong dollar and a very weak Fed".

"My only question is, who is our bigger enemy, Jay Powel (sic) or Chairman Xi?" — a reference to Xi Jinping.

Many economists have expressed growing alarm about the President's criticism of the Fed as an intrusion on its independence and a threat to its credibility.

AP/ABC