The White House has criticised China after it imposed retaliatory tariffs against the US on a range of goods including pork and wine.
Beijing has introduced duties of up to 25% on 128 American imports following President Donald Trump's decision to slap tariffs on steel and aluminium.
China said the move was intended to safeguard its interests and balance losses caused by the new tariffs.
US stocks plunged and Asian shares opened lower as trade war fears mount.
On Wall Street, the S&P 500 Index crashed 2.2%, while the Dow Jones Industrial Average dropped 1.9%.
In Asia, Japan's Nikkei 225 opened down about 1.5% on Tuesday.
In its statement about the tariffs, the White House accused Beijing of "distorting global markets".
"China's subsidisation and continued overcapacity is the root cause of the steel crises," spokeswoman Lindsay Walters said.
"Instead of targeting fairly traded US exports, China needs to stop its unfair trading practices which are harming US national security and distorting global markets."
The back-and-forth reflects rising tensions between the US and China, which President Trump has described as an "economic enemy".
What is this fight about?
The US has taken two major steps recently that have triggered tension with China.
On 8 March, it announced global steel and aluminium tariffs saying the measures were necessary to protect US producers and critical to national security. (Certain allies such as Canada, Mexico and the European Union, are in line for exemptions, pending talks.)
China challenged the US use of national security to justify the tariffs and announced retaliatory tariffs on $3bn (£2.1bn) worth of US products.
Those tariffs went into effect on Monday, targeting US goods including frozen pork, nuts, fresh and dried fruit, ginseng and wine.
That dispute, however, is a preview of a bigger showdown between the two countries.
A few weeks after announcing the steel and aluminium tariffs, the White House said it would impose additional tariffs on as much as $60bn in Chinese imports over intellectual property violations.
It said China has practices that put US firms at a disadvantage and unfairly pressure them to share technology, especially in fields such as robotics and telecommunications.
The two sides are now negotiating over the issues, though the White House has also said previous talks have failed, necessitating tariffs..