World stock markets have tumbled as investors fret over the prospect of a damaging trade war between the globe's two largest economies.
Tech shares – already under pressure over the Facebook data scandal – were among the sectors feeling the most pain as Donald Trump proposed action against China over what he sees as intellectual property theft.
The US President launched his protectionist agenda earlier this month – to save US jobs.
While the EU, including the UK, will escape imminent trade tariffs on steel and aluminium imports because of continuing negotiations, China is expected to face their full force when the measures come into force on Friday.
At a news conference, Mr Trump confirmed additional sanctions against Beijing were being prepared for the alleged theft of US technology across a wide range of goods and services – from software to fake Ralph Lauren polo shirts.
But China hit back, with a statement from its embassy in Washington saying it would "fight to the end…with all necessary measures".
"We urge the US to cease and desist," the embassy said, warning that by endangering China-US trade relations Washington will "eventually end up hurting itself".
Mr Trump had pointed to a $504bn trade deficit with the country and said tariffs on up to £60bn of Chinese goods could be in place following a 60-day consultation period.
Officials are also drawing up potential restrictions on Chinese investments in the US.
"We want reciprocal (trade)", Mr Trump said.
The government in Beijing has vowed to take "all necessary measures" to defend its interests and has already threatened retaliatory tariffs on US cars and agriculture.
Fears of a tit-for-tat trade war between the US and China saw US and European stocks markets fall sharply and bonds rally as investors took some shelter.
US-traded shares in Chinese digital marketplace Alibaba were down by 5.5% after the announcement as New York's stock markets endured their worst day since early February. The Dow Jones closed more than 700 points, or 3%, lower.
The FTSE 100 had earlier closed below the 7,000 point barrier for the first time since December 2016 – leaving it perilously close to losing 10% of its market value in the year to date.
It shed 1.2% – equating to around £22bn – to end the session at 6952. Micro Focus, the UK's largest technology firm, was the biggest loser down 6.3%.
The markets have taken fright because of the potential for a trade war damaging the global economic recovery.
Higher costs pose a big risk to jobs, wages and investment.
Jasper Lawler, head of research at London Capital Group, said: "Fresh tariffs from the Trump administration has put a global trade war right at the centre of market psyche.
"Investors are preparing for the worst," he added.
While US officials have confirmed that no EU nations will be hit by the 25% steel and 10% aluminium tariffs being introduced from Friday morning, the UK steel union Community and industry body UK Steel said it only provided some comfort.
Community's general secretary, Roy Rickhuss, said: "This exemption is of course welcome but it is only part of the solution.
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"If the Trump tariffs go ahead, then that will still mean millions of tonnes of steel looking for a new market, putting at risk thousands of steelworkers' jobs.
"That's why the UK government needs to ensure that the EU takes the necessary steps to introduce safeguards for all steel products which are affected by the US tariffs."