It is all starting to get ugly. As the United States trade dispute with China escalates into a full-blown trade war, Beijing has hit back at plans by US President Donald Trump to launch another round of tariffs worth a further US$200 billion on Chinese imports.

The shockwaves reverberated across Asia’s markets with the Shanghai Composite Index plunging 4% before recovering slightly to close at 2,906.43. But it still dipped below the psychologically 3,000-point barrier for the first time since September 2016.

“The market is so fragile. You don’t know where the bottom is,” David Dai, a general manager of Shanghai Wisdom Investment, told Reuters. “It’s more rewarding watching the World Cup.”

In Hong Kong, the Hang Seng Index fell 2.78% to close at 29,468.15 points, while the China Enterprise Index shed 3.18% to finish at 11,492.77.

“The tit-for-tat [tariffs] brings the two sides closer to a trade war,” Louis Kuijs, the head of Asia Economics at Oxford Economics, warned in a note.

Covered in red

Elsewhere, Japan’s Nikkei was down 1.7%, or 401 points, at 22,278.48, while the KOPSI in South Korea fell more than 1.5% to close at 2,340.11 points.

Electronic broads were covered in red as investors reacted quickly after Trump announced on Monday night that he had asked the US Trade Representative to identify $200 billion worth of Chinese imports for additional tariffs at 10%.

“[They would take effect] if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” he said.

“China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology,” Trump added in a statement. “Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.”

His latest warning came after the White House revealed last week that it would impose 25% tariffs on $50 billion of Chinese products, starting on July 6.

In response, Beijing confirmed during the weekend it would bring in tit-for-tat tariffs on $34 billion of US imports next month.

At the heart of the dispute is the ballooning trade deficit between the US and China.

Last month, the figure swelled to $24.6 billion, while between January to March, it hit $58 billion. In 2017, the US trade deficit with China was a record $375.2 billion, but that did not include services.

Still, Trump’s stance has angered Beijing with the Ministry of Commerce accusing Washington of “blackmail.”

“Such practice of imposing extreme pressure and blackmailing is contrary to the consensus the two sides have reached through rounds of consultations, and disappoints the international community,” a Ministry of Commerce spokesperson said.

‘Undermines interests’

“The trade war waged by the United States is against both the law of the market and the development trend of today’s world. It undermines the interests of the Chinese and American people, the interests of companies and the interests of the people all over the world,” the spokesperson added.

But after matching US tariffs, the world’s second-largest economy is starting to run out of options after importing just $129.8 billion of American imports.

Derek Scissors, a China scholar at the American Enterprise Institute, a Washington think tank, spelled out the reality of the situation when he said that Beijing has nearly exhausted US imports to target.

He also stressed that the White House’s broader plan to curtail President Xi Jinping’s high-tech “Made in China 2025” policy could only be achieved after a long and bitter trade war.

“As I’ve said from the beginning, China will back off its industrial plans only when US trade measures are large and lasting enough to threaten the influx of foreign exchange,” he said. “Not due to announcements.”

As tensions rise, the announcements are unlikely to stop.