World stock markets sank and the dollar rose Wednesday after Washington threatened to hammer Beijing with tariffs on a further $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.

US President Donald Trump has now ordered the imposition of a fresh round of tariffs, US Trade Representative Robert Lighthizer revealed.

“As a result of China's retaliation (to Friday's measures) and failure to change its practices, the president has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports,” Lighthizer said in a statement.

The news shattered the uneasy calm that had descended on markets, which have slumped in recent months on trade war woes — and analysts expect the situation to deteriorate significantly.

                   – 'Geopolitical 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 prices also sank heavily on concerns that a trade war could sap demand for the commodity that oils the wheels of the global economy.

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”.

Tuesday's announcement is the latest move by Trump in his America First protectionist agenda that has also seen the US target Canada, the European Union and Mexico, who have also hit back with their own measures, sparking global trade war woes.

Trump has previously warned he would hit a total of $450 billion in Chinese goods, which essentially accounts for all the country's US-bound exports, citing its unfair practices and intellectual property theft.

While observers have been nervously expecting the next salvo in the trade row, the news jarred markets, which had enjoyed some stability this week from upbeat US jobs data and hopes for the upcoming earnings season.

                  – 'Sobering reality' –

The news also rocked Asia. Tokyo's Nikkei index dived 1.2 percent, with exporters hurt as the haven yen climbed against the dollar.

Hong Kong lost 1.3 percent and Shanghai ended off 1.8 percent.

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 Friday of Chinese trade data, which will give an idea about how the row has affected the country's exports.

                  – Key figures around 1030 GMT

                  London – FTSE 100: DOWN 1.2 percent at 7,598.72 points

                  Frankfurt – DAX 30: DOWN 1.3 percent at 12,444.24

                  Paris – CAC 40: DOWN 1.2 percent at 5,371.49

                  EURO STOXX 50: DOWN 1.1 percent at 3,434.02

                  Tokyo – Nikkei 225: DOWN 1.2 percent at 21,932.21 (close)

                  Hong Kong – Hang Seng: DOWN 1.3 percent at 28,311.69 (close)

                  Shanghai – Composite: DOWN 1.8 percent at 2,777.77 (close)

                  New York – Dow: UP 0.6 percent at 24,919.66 (close)

                  Euro/dollar: DOWN at $1.1710 from $1.1744 at 2100 GMT Tuesday

                  Dollar/yen: UP at 111.21 yen from 111 yen

                  Pound/dollar: DOWN at $1.3236 from $1.3276

                  Oil – Brent Crude: DOWN $1.74 at $77.12 per barrel

                  Oil – West Texas Intermediate: DOWN 69 cents at $73.42

(APP)

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