LONDON: European stocks fell and the dollar rose on Wednesday (Jul 11) after Washington threatened to hammer Beijing with tariffs on a further US$200 billion of Chinese imports, ratcheting up the global trade war.
Washington's announcement comes just days after the world's two biggest economies exchanged tit-for-tat measures on a range of goods worth tens of billions of dollars.
"Trade war concerns resurfaced overnight when news broke that the US will announce tariffs on a further US$200 billion of imports from China with levies of 10 per cent," said Fawad Razaqzada, a market analyst at Forex.com.
The news shattered the uneasy calm that had descended on markets and allowed them to regain some of the ground lost in recent months on trade war woes.
But now, analysts expect the situation to deteriorate significantly.
'GEOPOLITICAL GAME OF CHICKEN'
"It is going to get much worse before it gets better," Rabobank senior strategist Michael Every told AFP.
"It will get worse because nobody will back down: it's a game of geopolitical chicken, and nobody wants to swerve as nobody can afford to lose."
Crude oil prices also sank heavily on concerns that a trade war could sap demand for the commodity that greases the wheels of the global economy - a concern echoed in OPEC's latest monthly report on Wednesday.
China meanwhile said it was "shocked" and warned it would impose countermeasures "to safeguard the core interests of the country and the fundamental interests of the people".
Trump had previously warned he would hit a total of US$450 billion in Chinese goods, which essentially accounts for all the country's US-bound exports, citing its unfair practices and intellectual property theft.
European stock markets were all well over one percent lower by the close, with Wall Street showing more modest losses approaching midday in New York.
"Markets are panicking about the impact of a tit-for-tat trade war on economic growth," Manulife Asset Management investment analyst William Hamlyn told AFP.
Earlier the trade war jitters also rocked Asia.
Tokyo's Nikkei index dived 1.2 per cent, with exporters hurt as the safehaven yen climbed against the dollar.
Hong Kong lost 1.3 per cent and Shanghai ended off 1.8 per cent.
Stephen Innes, head of Asia-Pacific trade at OANDA, cautioned that "nothing is written in stone and the tariffs are not set to take effect until September".
He added however that the move was still "a very sobering reality check as to just how fragile sentiment around trade war rhetoric is".
Observers will be keeping a close eye on the release on Friday of Chinese trade data, which will give an idea about how the row has affected the country's exports.
Key figures 1545 GMT:
London - FTSE 100: DOWN 1.3 per cent at 7,591.96 points (close)
Frankfurt - DAX 30: DOWN 1.5 per cent at 12,417.l3 (close)
Paris - CAC 40: DOWN 1.5 per cent at 5,353.93 (close)
EURO STOXX 50: DOWN 1.3 per cent at 3,426.83
New York - Dow: DOWN 0.5 per cent at 24,791.32
Tokyo - Nikkei 225: DOWN 1.2 per cent at 21,932.21 (close)
Hong Kong - Hang Seng: DOWN 1.3 per cent at 28,311.69 (close)
Shanghai - Composite: DOWN 1.8 per cent at 2,777.77 (close)
Euro/dollar: DOWN at US$1.1719 from US$1.1744 at 2100 GMT Tuesday
Pound/dollar: DOWN at US$1.3245 from US$1.3276
Dollar/yen: UP at 111.39 yen from 111.00 yen
Oil - Brent Crude: DOWN US$1.84 at US$77.02 per barrel
Oil - West Texas Intermediate: DOWN US$1.15 at US$72.96 per barrel