• Video report by ITV News Correspondent Emma Murphy in Washington

China has announced it will impose tariffs on £46 billion ($60 billion) of US goods in retaliation for the latest hike in American tariffs on its exports.

The move comes three days after the US more than doubled tariffs on £154 billion of Chinese imports and sent financial markets into a tailspin.

China's finance ministry said the new penalty duties of between 5% and 25% on hundreds of US products, including American cotton, wine, beer, batteries, spinach and coffee, will take effect on June 1.

The tit-for-tat trade war was instigated after US President Donald Trump claimed China had backtracked on commitments it made in earlier negotiations.

China made it clear last week that it intended to retaliate. Trump has responded by threatening to impose further tariffs.

The impact of the trade war between two of the most powerful countries in the world was reflected in the turmoil experienced by the stock market with millions wiped away.

The Dow Jones Industrial Average fell 617 points, or 2.4%, and the technology-heavy Nasdaq plunged 270 points, or 3.4%, in its biggest drop of the year. Stocks also fell in Europe and Asia.

A financial expert described the situation as a ''slow-motion train wreck'' and said it is the consumers who will ultimately suffer.

Chinese investors monitor stock prices. Credit: PA

"Right now, we appear to be in a slow-motion train wreck, with both sides sticking to their positions," said William Reinsch, a trade analyst at the Centre for Strategic and International Studies and a former US trade official.

"As is often the case, however, the losers will not be the negotiators or presidents but the people."

The Bank of England has said previously that as only as small part of UK economic activity comes from exports, and that Britain should be largely unscathed.

However Chancellor of the Exchequer, Philip Hammond, has argued that the tariffs will hurt global economic growth and Britain is “exposed”.

Resuming his messages over Twitter early Monday, President Trump warned Chinese President Xi Jinping that China “will be hurt very badly” if it doesn’t agree to a trade deal.

Mr Trump tweeted China “had a great deal, almost completed, & you backed out!”

Mr Trump insisted the tariffs the US has placed on Chinese goods do not hurt American consumers, saying there is “no reason for the US consumer to pay the tariffs”.

However White House economic adviser Larry Kudlow acknowledged on Sunday that US consumers and businesses pay the tariffs. “Both sides will pay,” he said.

China had vowed “necessary countermeasures” on Friday against Mr Trump’s escalation of the tariff conflict.

Despite the trade war, Mr Trump said on Monday that the US has "a very good relationship" with China.

He said the two sides would talk at the next G20 summit which takes place in Japan on 28 and 29 June.

"Maybe something will happen," he said.

"We're going to be meeting, as you know, at the G20 in Japan and that'll be, I think, probably a very fruitful meeting."

Earlier, the President had warned China against a tit-for-tat response to the US's actions last week.

Donald Trump has been locked in a trade war with China throughout his presidency. Credit: AP

Trump said in a tweet shortly before news of the Chinese decision came: "China should not retaliate - will only get worse!"

He added China had "taken so advantage of the US for so many years".

Beijing is running out of US imports for penalties due to the lopsided trade balance between the world’s two largest economies.

Regulators have targeted American companies in China by slowing down customs clearance for shipments and processing of business licences.

The new tariffs are likely to hurt exporters on both sides, as well as European and Asian companies that trade between the United States and China or supply components and raw materials to their manufacturers.

The increases already in place have disrupted trade in goods from soybeans to medical equipment and sent shockwaves through other Asian economies that supply Chinese factories.

Forecasters have warned that the US tariff hikes could disrupt a Chinese recovery that had appeared to be gaining traction. Growth in the world’s second-largest economy held steady at 6.4% over a year earlier in January-March, supported by higher government spending and bank lending.

The tensions “raise fresh doubts about this recovery path,” said Morgan Stanley economists Robin Xing, Jenny Zheng and Zhipeng Cai.

The latest talks ended with no word of progress on Friday.