Trump determined to hit China as tit-for-tat tariff war erupts

China has underestimated President Donald Trump's resolve to press ahead with tariffs unless Beijing changes its "predatory" trade practices, a top U.S. trade adviser said on Tuesday, in comments that undercut the chances of a negotiated settlement to a looming trade war between the world's economic superpowers.

The threat of a growing trade conflict with China hit financial markets hard, with Beijing vowing a firm response after Trump on Monday said he would implement tariffs on an additional $200 billion US of imports from China if Beijing went ahead with reprisals over an initial set of U.S. tariffs.

White House trade adviser Peter Navarro, a sharp critic of Chinese trade actions, said China has more to lose from any trade war.

"The fundamental reality is that talk is cheap," Navarro told reporters on a conference call, again accusing China of "predatory" trade policies.

"I think that the other side may have underestimated the strong resolve of President Donald J. Trump," Navarro added. "If they thought that they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation."

The threat of new tariffs against China pits the world's two largest economies against each other and looks set to disrupt global supply chains for the tech and auto industries, two sectors that rely heavily on outsourced components.

In total, Trump has now threatened up to $450 billion US in Chinese imports with tariffs, including another $200 billion US in Chinese goods if Beijing retaliates after the step Trump announced on Monday.

Mounting concerns over the U.S.-China dispute sent global stock markets skidding and weakened both the dollar and the Chinese yuan on Tuesday. Shanghai stocks plunged to two-year lows. The Dow Jones Industrial Average and the S&P 500 also fell along with commodities. U.S. bond yields fell in a flight to safety.

China accused the United States on Tuesday of "extreme pressure and blackmailing" and vowed to retaliate after Trump threatened to impose a 10 per cent tariff on $200 billion US of Chinese goods in addition to $50 billion of import duties that had already been announced.

China's commerce ministry said Beijing will fight back with "qualitative" and "quantitative" measures if the United States publishes an additional list of 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 U.S., but of the world," the ministry said in a statement.

Even as the U.S. trade conflict with China deepens, Trump has raised trade tensions on other fronts. Trump slapped tariffs on steel and aluminum from Canada, Mexico and the European Union, threatened to kill the North American Free Trade Agreement and is studying new tariffs on car imports.