The White House has criticised China after it imposed retaliatory tariffs against the US on a range of goods, including pork and wine.
Beijing put duties of up to 25% on 128 American imports following President Donald Trump's decision to slap taxes on imports of steel and aluminium.
China said the move was intended to safeguard its interests and balance losses caused by the new tariffs.
US stocks fell sharply and Asia traded generally lower, amid trade war fears.
On Wall Street, the S&P 500 Index lost 2.2%, while the Dow Jones Industrial Average dropped 1.9%.
In Asia, Japan's Nikkei 225 opened down about 1.5% on Tuesday but recovered a little to close 0.45% lower. The Shanghai Composite closed down even further, dropping 0.84%, although Hong Kong's Hang Seng bucked the trend, reversing earlier losses to finish up 0.29%.
The White House reacted angrily to China's move.
"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," spokeswoman Lindsay Walters said.
She added; "China's subsidisation and continued overcapacity is the root cause of the steel crises,"
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 on tariffs recently that have triggered tension with China, the first on steel and aluminium and the second on intellectual property.
The global steel and aluminium tariffs were announced on 8 March. The US is using national security laws to impose the tariffs, which it says are needed to protect US producers.
Certain allies such as Canada, Mexico and the European Union are in line for exemptions, pending talks.
China has challenged the US use of national security laws 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.
The US tariffs related to intellectual property are expected to be set out this week.
