China's Commerce Ministry warned that China will have "no choice but to take... powerful countermeasures" if US President Donald Trump carries through with a new threat of additional tariffs on Chinese goods.
"The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the US, but of the world," the ministry said yesterday.
Major Asian markets dipped on fears of a deepening trade war. The Shanghai market closed down 3.78 per cent, Hong Kong's Hang Seng closed down 2.78 per cent, while the Straits Times Index slipped 0.68 per cent. The Dow Jones Industrial Average in New York lost around 420 points, or 1.65 per cent, in early trade.
China's response came as Mr Trump sharply ramped up his trade showdown with Beijing, threatening tariffs of 10 per cent on US$200 billion (S$272 billion) worth of Chinese goods if China levies tariffs on US$50 billion worth of US products in a proportionate retaliation for US tariffs announced last week.
The Trump administration wants to narrow its US$376 billion trade deficit with China and force it to offer better terms and market access to American companies.
Rather than altering "unfair practices related to the acquisition of American intellectual property and technology", China was now threatening American companies, workers and farmers, Mr Trump said.
"If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another US$200 billion of goods.
"These tariffs will go into effect if China refuses to change its practices, and insists on going forward with the new tariffs it has recently announced. This latest action by China clearly indicates its determination to keep the US at a permanent and unfair disadvantage. "
Analysts say China is unlikely to back down. In Beijing, economist Hu Xingdou said China could use other leverage against the US - with North Korea, Iran and Syria, for instance.
He told The Straits Times: "The US will realise that China... cannot be completely offended, otherwise on many international affairs, China would not collaborate with it."
In Washington, Ms Kellie Meiman Hock, managing partner of trade and business consultancy McLarty Associates, cautioned that China may find other ways to retaliate, including against US firms in China.
"The administration hopes that by placing additional tariff threats on the table, that will help move us closer to a resolution, but my view is tariffs are not going to be the motivator the administration believes they are," she said.
But Dr Peter Navarro, top trade adviser to Mr Trump, defended the President, telling journalists he "understands better than anyone that if China captures emerging industries of the future, Americans will have no future. Economic security is national security".
•Additional reporting by Goh Sui Noi