China said it would levy an additional 25% tariff on imports of 106 USA products including soybeans, automobiles, chemicals and aircraft, in response to proposed American duties on its high-tech goods.
The statement said China has suspended duty concessions on imported goods originating from the U.S., and has imposed a duty rate of 15 percent on 120 items of imports, such as fruits and products.
The US and China exchanged more than $US700bn in goods and services past year, according to US figures.
After an early jolt, stocks rallied and finished higher Wednesday as investors bet that back-and-forth tariff threats between the US and China won't blossom into a bigger dispute that damages global commerce.
The implementation date of China's retaliatory tariffs depends on the outcome of bilateral negotiations, and the USA decisions, Deputy Finance Minister Zhu Guangyao, told reporters after a news conference in Beijing.
Boeing and Caterpillar led a slide in big USA manufacturers and technology companies that bore the brunt of the U.S.
But some U.S. markets already have responded to the trade spat with higher prices and tighter supplies even though the largest of the tit-for-tat import duties have yet to take effect. The USTR determined that the Chinese government was forcing US firms to share their IP with Chinese companies as a condition for doing business in the country, depriving those companies of sales and hurting the US economy. The pan-European FTSEurofirst 300 index of leading regional shares fell 0.43 percent. And while the trade dispute has primarily been centered on China and the USA thus far, other countries may be pressured to get involved as relations strain.
Overall, Asian stock market losses were not as bad as first feared at the open, with stocks across the region clawing back ground later in the session.
The S&P 500 was about 4 points or 0.15 percent lower by late morning, while the Nasdaq was flat.
Q: What reasons do Washington and Beijing have for avoiding a trade war?
Among the region's major indexes, Germany's DAX was down 1.2 percent while the FTSE 100 index fell 0.4 percent, in the wake of China's decision to raise tariffs on $50 billion of USA goods including soybeans, aircraft and automobiles.
Jack Daniel's maker Brown-Forman Corp BFb.N slipped about 1 percent before recovering after whiskey was singled out as the only spirit on which China planned to impose more tariffs.
Markets have been buffeted in recent weeks by everything from a volatility spike and a tech selloff to fears of an all-out trade war, and developments on Wednesday suggest there may be more turbulence to come. The FTSE 100 in Britain gained 0.1 percent.
Another economy at risk is the semi-autonomous Hong Kong, which is a gateway for much of the trade that flows between mainland China and the US. Heating oil lost 2 cents to $1.98 a gallon. US crude settled down 14 cents at $63.37 per barrel and Brent slid 10 cents to settle at $68.02.
Mr Trump was devil-may-care in response to pre-trading reports that the Dow would fall over 500 points, tweeting: 'When you're already $500 Billion DOWN, you can't lose'. The yield on the 10-year Treasury note rose to 2.79 percent from 2.77 percent.
Gold increased 1% to $1,346.43 an ounce, the highest in more than a week as investors turned towards safe-haven assets amid rising volatility. The euro hovered at $1.2296, after easing from a top of $1.2335 overnight, while the dollar index was 0.2% lower at 90.