US President Donald Trump is to impose 25% tariffs on $50bn worth of Chinese goods, accusing Beijing of intellectual copyright theft.
Tariffs that affect more than 800 products worth $34bn in annual trade are due to come into effect on 6 July.
The White House said it would consult on tariffs on the other $16bn of products, and would apply these later.
China retaliated, saying it will impose an additional 25% tariff on 659 US goods worth $50bn.
The US had earlier warned that it will impose even more tariffs should China retaliate.
Mr Trump said the tariffs were “essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs.”
The Chinese product lines that have been hit range from aircraft tyres to turbines and commercial dishwashers.
In response, China announced tariffs on $34bn of US goods including agricultural products, cars and marine products which will also take effect from 6 July.
Tariffs on other US goods will be announced at a later date, the Xinhua news agency reported.
“If the US takes unilateral and protectionist measures that harm Chinese interests, we will respond immediately by taking the necessary decisions to safeguard our legitimate rights and interests,” Chinese foreign ministry spokesman Geng Shuang said earlier on Friday.
All trade talks between China and the US would be void if Washington imposed trade sanctions, he added.
Stock markets dropped in Europe and the US after the announcements with investors concerned about a possible trade war.
The US wants China to stop practices that allegedly encourage transfer of intellectual property – design and product ideas – to Chinese companies, such as requirements that foreign firms share ownership with local partners to access the Chinese market.
However many economists and businesses in the US say the tariffs are likely to hurt some of the sectors the administration is trying to protect, which depend on China for parts or assembly.
Farmers are also worried about harm caused by retaliation.
Economists estimate that the tariffs will hurt GDP by less than half of a percentage point. But the measures could also lead to higher prices and job losses in some industries.
The Motor and Equipment Manufacturers Association, which represents car parts makers, called the tariffs “taxes that hurt U.S. companies, put jobs at risk, and negatively impact consumers.”
Boat-makers, which are also facing higher costs due to US tariffs on steel and aluminium, will now be hit with tariffs on almost 300 parts, said the National Marine Manufacturers Association.
The organisation described the tariffs as “bad trade policies that are piling up on top of each other”.
The International Monetary Fund (IMF) warned that the dispute could hurt business and consumer confidence.
IMF Director Christine Lagarde said Thursday that a trade war would lead to “losers on both sides” and could have a “serious” impact.
The US announced plans for tariffs this spring, after an investigation into China’s intellectual property practices.
It published a draft list of about 1,300 Chinese products slated for tariffs in April. The list released Friday incorporates feedback and criticism received in the ensuing weeks.
It contains about 1,100 items, including about 285 newly proposed items – such as items for the semiconductor industry – that are subject to further review.
The White House said the measures shouldn’t hurt consumers, pointing out that items such as televisions that were included on the draft list had been taken off the list.
It will also allow companies to apply for exclusions from the duties.
The plans have elicited a mixed political reaction, drawing praise from Democrats and opposition from Republicans, who typically favour free trade policies.
Senator Chuck Schumer, a leading Democrat, said the president’s actions were “on the money”
He said: “China is our real trade enemy, and their theft of intellectual property and their refusal to let our companies compete fairly threatens millions of future American jobs.”
Republican Kevin Brady said it was “encouraging” that the administration had revised the initial list but urged the White House to further narrow the items subject to the tariffs.
He said: “My message has been consistent: we need to hit our target, which is China and its deceptive and harmful trading practices. But I am concerned that these new tariffs will instead hurt American manufacturers, farmers, workers, and consumers.”