US economists and businesses say it risks being the most economically consequential of all of US President Donald Trump's tariff moves so far.
Ratings agency Moody's warned the escalation would "exacerbate the uncertainty in the global trading environment.
"[It] further raises tensions between the US and China, negatively affects global sentiment and adds to risk aversion globally," said Michael Taylor, Managing Director, Credit Strategy & Standards for Moody's Investors Service.
"The higher tariffs could also lead globally to the re-pricing of risk assets, tighter financing conditions, and slower growth."
"In addition, the trade tensions could result in an increasingly fragmented global trading framework; weakening the rules-based system that has underpinned global growth, particularly in Asia, over the past several decades."
Trade talks will continue in Washington for a second day tomorrow, but there now seems little hope of a resolution any time soon.
The mood on both sides going into the talks had appeared to be hardening with US Trade Representative Robert Lighthizer calling members of Congress to warn that a deal this week was unlikely.
While Trump on Wednesday insisted that Liu was coming to make a deal and dubbed him a "good man," he later told a rally of supporters that China "broke the deal" by backsliding on prior commitments, leading him to order higher tariffs.
China has disputed Trump's characterisation that the country reneged. But it has also sent its own signals that a deal could take time.
Chinese officials' public statements have also hardened in recent days with Beijing vowing to retaliate against Trump's tariff increase and rejecting the idea that it has reneged on any commitments made during the months of tough negotiations that have led to this week's showdown.
"China is credible and honours its word and that has never changed," Commerce Ministry Spokesman Gao Feng said.
The Ministry of Commerce also announced it would soon publish details of new retaliatory tariffs.
New data shows the US trade deficit with China decreased to the narrowest in almost three years as imports slowed and exports advanced.
"When people looked at the economic numbers, they were shocked. When they look at the import-export numbers they were shocked," Trump said on Thursday. "Try looking at all of the tariffs that China's been paying us for the last eight months. Billions and billions of dollars."
Economists disagree with the president and say the evidence is that American consumers and companies are bearing the costs of his tariffs via higher prices.
The Financial Times reports a study, whose authors include World Bank chief economist Pinelopi Goldberg, estimated the aggregate annual loss to the US economy was US$7.8 billion.
But China would be harder hit. Economists at Barclays estimated that a 25 per cent tariff on US$200b of exports could cut Chinese growth by half a percentage point over 12 months, the FT reported.
The higher import taxes won't hit goods that already left Chinese ports before Friday's deadline. Only when those shipments complete the three- to four-week voyage across the Pacific to the US would they face the 25 per cent tariff.
- Additional reporting Washington Post, AP
