Beijing has vowed to retaliate if the US carries out its threat to raise tariffs on $200bn of Chinese exports from tomorrow.
Donald Trump signalled the escalation in their trade war last Sunday, announcing the charges were to go up from 10% to 25% as his administration accused China of reneging on promises made during peace talks.
Those negotiations are due to resume in Washington today, less than 24-hours before the tariffs are due to go up.
The talks will be attended by Vice Premier Liu He – signalling that relations have not entirely broken down.
President Trump’s threat was widely seen as holding a gun to Beijing’s head, with his trade team saying it had hoped to sign an agreement to end the trade war but for China tearing up its commitments.
The main area of disagreement is said to centre on the US allegations that China steals technology and pressures American companies into handing over trade secrets.
China’s Commerce Ministry said it would respond to any increase in tariffs but did not elaborate.
The deterioration in the negotiations has sparked renewed jitters on the prospect for peace in financial markets worldwide this week.
Stocks extended earlier losses in Asian trade after Mr Trump told a rally of supporters in Florida that China had “broke the deal” and would be paying for it.
The Shanghai Composite was more than 1% lower on Thursday – building on earlier losses in the week.
Hong Kong’s Hang Seng was down 1.6% while the Nikkei in Japan was 1.2% lower.
In London, the FTSE 100 was forecast by financial spreadbetters to open down 0.3%.
Jasper Lawler, head of research at London Capital Group, said: “Risk aversion continues to grip the market.
“Riskier assets such as equities are out of favour, whilst flows into the safe haven yen have pushed the currency towards a six-week high versus the dollar.”
He added: “Any indication that Chinese negotiators can convince President Trump to back down on the tariff hike threat, will lift stocks.
“On the other hand, should Trump go ahead with the tariff increase we could expect equities to continue falling. Investors will need to price in the trade dispute as a much longer-term factor.”
The trade war between the world’s two largest economies has been blamed for curtailing global demand – and therefore growth.
Steve Cochrane, chief APAC economist at Moody’s Analytics in Singapore, wrote: “If Trump’s threat becomes reality, it will be a game changer for the global economy.
“This is the worst-case scenario we modelled last year that resulted in recession conditions in the United States, a rapid reduction of growth in China, and slower global trade.”
Source: SKY NEWS