Washington: China vowed to retaliate after US President Donald Trump threatened tariffs on another $200 billion in Chinese imports, deepening a trade war between the world’s two biggest economies.

In an immediate rebuke to Trump, the ministry of commerce in Beijing labelled the move “extreme pressure and blackmail," and said it would retaliate with counter measures. “If the US loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures and retaliate forcefully," according to a statement from the ministry on Tuesday.

Markets soured as the trade war deepened. The benchmark index of Chinese stocks fell more than 3%, other Asian share markets declined and US equity futures traded lower, while safe havens including the yen, gold and Treasuries climbed. Soybean meal futures jumped.

A statement from the White House Monday evening said Trump had instructed the US trade representative’s office to identify $200 billion in Chinese imports for additional tariffs of 10% and on another $200 billion after that if Beijing retaliates.

“The United States will no longer be taken advantage of on trade by China and other countries in the world," he said. “We will continue using all available tools to create a better and fairer trading system for all Americans."

The developments suggest a deepening trade dispute that the International Monetary Fund has described as one of the biggest risks to global growth. By targeting goods that are finished in China but whose components are often sourced from neighbouring South Korea, Japan and Taiwan and more, the U.S. strategy could hurt the economies of America’s allies too.

“The collateral damage from an escalating US-China trade war will be widespread," said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore.

There are dangers for the US economy too. If implemented, Trump’s tariffs would mean a sizable amount of imported Chinese goods would be exposed to new tariffs. Higher prices on imported goods could dampen consumer sentiment and pressure inflation.

“The first $50 billion in tariffs are targeted at machinery and other goods that don’t directly impact consumers," said Tom Orlik, chief economist at Bloomberg Economics. “Pulling off the same trick with tariffs on $200 billion would be tough to do."

Orlik said that in the event that China’s exports to the US weaken in the face of tariffs, the government would likely seek to offset the growth impact with a combination of subsidies to support domestic demand and higher infrastructure investment.

The US President last week threatened 25% tariffs on $50 billion in Chinese products and said at the time he would impose even more duties if China retaliated. That retaliation was swift in coming, with a statement from Beijing on Friday that it would “strike back forcefully."

China’s threat “clearly indicates its determination to keep the United States at a permanent and unfair disadvantage," Trump said Monday. “This is unacceptable. Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship."

The latest salvo came as Trump seeks to convince U.S. lawmakers to let Chinese telecom company ZTE Corp. remain in business after it became a bargaining chip in the trade row. Earlier this month, the Trump administration gave ZTE a reprieve for breaking a sanctions settlement after the company agreed to pay fines, change management and agree to American oversight. ZTE’s survival has been a key goal of Chinese President Xi Jinping.

Shares in ZTE dived after the Senate passed legislation on Monday evening that would restore penalties.

The U.S. imported $505 billion of goods from China last year and exported about $130 billion, leaving a 2017 trade deficit of $376 billion, according to U.S. government figures. The fact that America imports more from China will make it harder for Beijing to match Trump’s attacks, according to Derek Scissors, a resident scholar at the conservative American Enterprise Institute in Washington who focuses on China.

“All they can do is impose higher tariffs on a smaller subset of products," he said. That being said, “China is going to retaliate," he added.