The US plans to impose tariffs on about $50bn in Chinese goods and limit the country’s investment activity in the US as payback for what it alleges is years of intellectual property theft.
The White House said the actions are a necessary step to counter unfair competition from China’s state-led economy.
It said years of talks about the issue failed to produce change.
China said it was ready to retaliate with “necessary measures”.
The back-and-forth, following other trade penalties the Trump administration has imposed on foreign goods such as steel and aluminium, has raised the spectre of a trade war.
US stock markets sank ahead of the announcement on Thursday, but pared losses as the president seemed to indicate his willingness to negotiate.
US President Donald Trump said he is looking for “reciprocal” trade terms for American companies.
“We’ve spoken to China and we’re in the midst of a very large negotiation,” he said at the White House as he signed a memo regarding the activities. “We’ll see where it takes us.”
What is behind the tariffs?
The tariffs follow an investigation of Chinese policies that US President Donald Trump ordered in August.
The White House said the review, called a 301 investigation, found a range of “unfair” practices, including using restrictions on foreign ownership that pressure companies into transferring technology.
The US also found evidence that China imposes unfair terms on US companies; steers investments in the US to strategic industries; and conducts and supports cyber attacks.
The White House said it has prepared a list of more than 1,000 products that could be targeted by tariffs. Businesses will have the opportunity to comment before the final list goes into effect.
The US is also exploring ways to limit Chinese investment in the US and will seek to bring complaints about unfair licensing terms to the World Trade Organization, officials said.
America’s top trade negotiator, Robert Lighthizer, said protecting US technology is critical to America’s economic future.
“This is an extremely important action, very significant, very, very important for the future of the country,” he said.
What has China said?
On Thursday, China’s commerce ministry said it was ready to retaliate against the new tariffs.
“China will not sit idly by and let its legitimate rights and interests be harmed, and will certainly take all necessary measures to resolutely defend its legitimate rights and interests,” it said in a statement.
According to the Wall Street Journal, China is preparing to hit back with tariffs aimed at President Donald Trump’s support base.
This would include levies targeting US agricultural exports from Farm Belt states.
Frank Lavin, chief executive of Export Now and a former US ambassador to Singapore, said China typically takes some kind of action, but avoids escalating the problem.
Who are the potential losers?
Analysts say the tariffs, if imposed as described, could lead to higher costs for consumers, while retaliation hits key sectors of the US economy including agriculture and aerospace.
China was the third largest market for US exports in 2016 and among the biggest buyers of American soybeans, corn, pork and aircraft.
On Thursday, shares of plane-maker Boeing sank more than 2%. Representatives of states such as Kansas, which has a large farming base, have been among the most critical of the administration’s approach.
US officials have acknowledged the possibility of retaliation but downplayed the risks.
“China will have a choice in how to respond and they have benefited far more from this relationship than we have,” a White House official said during a background briefing for reporters about the plans.
Is there wider support in the US for tariffs?
There is growing concern in America about China’s state-led economy and worry that China is seeking technology that could be deployed for military purposes.
Congress is debating legislation that would boost the government’s power to review foreign business deals, citing the threat posed by state-backed acquisition of US firms.
But some politicians have been critical of the administration’s approach, saying Mr Trump’s bluster aggravates the situation and alienates allies.
“I get a kind of stomp-your-feet approach makes some people feel good, but in the integrated economy, we already have, it’s more complex,” Senator Maria Cantwell, a Democrat from Washington, said at a Senate Finance Committee hearing on Thursday.
What else has Trump done on trade?
In March President Trump signed controversial orders imposing heavy tariffs on steel and aluminium – but said some countries such as Canada and Mexico would be spared. The EU is also hoping to be given a last-minute exemption.
In January he imposed taxes on imported washing machines and solar panels, sparking anger in China and South Korea.
In addition he has pulled the US out of the Trans-Pacific Partnership – a 12-nation free trade deal – calling it a “disaster… pushed by special interests”.
He is also renegotiating the North American Free Trade Agreement (Nafta) with Canada and Mexico, which he blames for a decline in manufacturing jobs in the US.
Mr Trump has long said the US is treated unfairly by its trade partners, and claimed America had a trade deficit of $800bn (£579bn) in 2017.
However, experts suggest the figure was actually $566bn.
Could we see a trade war?
China has previously said there would be no winner from any trade war.
It has also urged both sides to remain calm and hinted at making reforms “beyond expectations” to satisfy the US.
Mr Trump has previously tweeted “trade wars are good, and easy to win.” But US Treasury Secretary Steven Mnuchin recently said the president “was not trying to start a trade war”.
In a possible sign of what is to come, Best Buy, the largest US consumer electronics retailer, has decided to stop buying smartphones from Chinese telecom equipment maker Huawei, according to a report on the Reuters news agency.
This would follow similar action from telecoms firms AT&T and Verizon, which cut ties with Huawei after US officials raised concerns about its close affiliation with the Chinese government.
Best Buy has declined to comment on the claims.
Meanwhile on Wednesday, the World Trade Organization (WTO) ruled that Washington had not fully complied with a 2014 ruling against its anti-subsidy tariffs on various Chinese products.
These ranged from solar panels and wind towers to steel cylinders and aluminium extrusions.
China’s commerce ministry said the WTO ruling “proves that the US side has violated WTO rules” and “repeatedly abused trade remedy measures”.
“[This] has seriously damaged the fair and just nature of the international trade environment, and weakened the stability of the multilateral trading system.”
But the WTO has ruled against China’s trade practices in the past. In January, it ruled that China must lower its tariffs on broiler chickens imported from the US.