"Investors are increasingly anxious an anticipated second-half profit rebound may now evaporate as President (Donald) Trump's threat to tariff the remaining US$325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven U.S. economy", said Alec Young, managing director of global markets research at FTSE Russell.
The U.S. Trade Representative's office Monday released a list of about US$300 billion worth of Chinese goods including children's clothing, toys, cell phones and laptops that Trump has threatened to hit with a 25 per cent tariff.
Mr. Trump said Monday that he expected some measure of retaliation but insisted that the U.S.is ready to withstand China's move.
In a commentary, state television said the effect of the US tariffs on the Chinese economy was "totally controllable".
Elsewhere, European shares dropped more than 1% after the European Union said it was finalizing a list of USA goods to target in the event Trump imposes levies on vehicle imports.
The move came after the two side failed to reach a deal during high-level trade talks in Washington last week. "China should not retaliate-will only get worse", Trump said on Twitter.
Trump might meet his Chinese counterpart, Xi Jinping, during next month's meeting of the Group of 20 major economies in Osaka, said Kudlow, his economic adviser, Larry Kudlow.
A stumbling block has been US insistence on an enforcement mechanism with penalties to ensure Beijing carries out its commitments.
The "points" are a reference to the percentage increase in tariffs on Chinese goods, from 4 per cent to 25 per cent, compared to a more modest tariff hike the Chinese have recently enforced in the other direction. Consumer spending accounts for more than two-thirds of US economic activity.
"We support the administration's efforts to deliver a meaningful trade agreement that levels the playing field for American businesses and workers", Matthew Shay, president and CEO of the National Retail Federation, said in a statement.
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Earlier on Monday, the U.S. president said China would be "hurt very badly" if the country did not make a deal with the US. "But the latest tariff escalation is far too great a gamble for the US economy".
Beijing is running out of imports to penalize due to the lopsided U.S.
Trump ordered the tariff increases after talks in Washington with China's vice-premier, Liu He, ended with no deal in sight.
The president also hypothesized in an early-morning tweet: "I think that China felt they were being beaten so badly in the recent negotiation that they may as well wait around for the next election, 2020, to see if they could get lucky & have a Democrat win".
China has announced tariff hikes on US$60 billion of United States goods in retaliation for USA moves.
The flags of China, US and the Chinese Communist Party are displayed in a flag stall at the Yiwu Wholesale Market in Yiwu, Zhejiang province, China, May 10, 2019.
The response was announced after Trump on Monday warned Beijing not to retaliate.
"It's no big deal".
Economists and industry consultants, however, maintain that it is USA businesses that will pay the costs and likely pass them on to consumers.