USA stocks fell on Wednesday, breaking a four-session streak of gains after Washington's threat to impose tariffs on an additional $200 billion worth of Chinese goods fanned trade war fears, while a sharp drop in oil prices hit energy shares.
U.S. Trade Representative Robert Lighthizer said the United States would impose tariffs of 10 percent on the additional Chinese imports.
The additional US tariffs, which will go through a two-month approval process including a public hearing, come after China retaliated in a tit-for-tat trade skirmish last week.
In a statement USA trade representative Robert Lighthizer said these newadditional tariffs are a result of "China's retaliation and failure to change its practices" after the first round of tariffs.
Beijing "never yields to threat or blackmail" and will retaliate against the "groundless" tariffs, China's Vice Minister of Commerce Wang Shouwen said in written comments to Bloomberg. "If the USA goes ahead with more, China needs a combination of tools and it is prudent to guard against downside risk to growth too".
'TARIFFS ARE TAXES' Senate Finance Committee Chairman Orrin Hatch, a senior member of Trump's Republican Party, said the announcement "appears reckless and is not a targeted approach".
The offshore yuan was at 6.6848 per dollar at 0831GMT after hitting a low of 6.6918, down almost 0.5 percent on the day, at one point in early Asian trade.
Trump has been following through on pledges he made during his 2016 presidential campaign to get tough on China, which he accuses of unfair trade practices including theft of intellectual property and forced technology transfer that have led to a $375 billion USA trade deficit with China.
The round of tariffs that went into effect last Friday mainly applied to raw materials imported by American companies.
Chinese retaliation:China has threatened to retaliate dollar-for-dollar if the Trump administration imposes a new round of tariffs.
Head of U.S. equity strategy at JP Morgan, Dubravko Lakos-Bujas, said: "Despite trade headlines, S&P 500 companies should deliver robust earnings on above-trend revenue growth and sharply higher margins".
Members of Congress are increasingly questioning Trump's aggressive trade policies, warning that tariffs on imports raise prices for consumers and expose United States farmers and manufacturers to retaliation overseas. The trade war could also jeopardize China's help in confronting North Korea's nuclear program.
The USTR will accept public comments and hold hearings August 20-23 before reaching a decision after August 31, according to a senior USA official who briefed reporters on condition of anonymity. The Chinese government's industrial strategy to make its goods competitive on the global market, in place since 2015, seems to have been one of the key instigators of Trump's trade war.
The Chinese Commerce Ministry said Tuesday that it would be forced to retaliate against what it called "totally unacceptable" USA tariffs.
On Tuesday, the US Trade Representative's office announced a $200bn list of Chinese goods for possible 10 percent tariffs including fish, apples and burglar alarms. They criticize Trump's tactics but share U.S. complaints about Beijing's industrial policies.