President Donald Trump on Thursday hit China with tariffs on up to $60 billion of imports to retaliate against the "theft" of American intellectual property, ratcheting up trade tensions between the world's two largest economies.
Saying it would be the "first of many" trade actions, Trump signed the order that also could result in restrictions on Chinese investment in the US.
The move sent stocks diving amid rising market fears the United States could provoke a trade war, since China has vowed to retaliate.
At the closing bell, the Dow Jones Industrial Average was at 23,959.51, down 2.9 percent, near its lowest point in a rocky session.
The broad-based S&P 500 dropped 2.5 per cent to 2,643.70, while the tech-rich Nasdaq Composite Index fell 2.4 percent to 7,166.68.
But at the same time Washington also said it would at least temporarily exempt the European Union and six other countries from steep steel and aluminum tariffs announced this month, easing the immediate threat of a trade dispute with US allies.
"We have a tremendous intellectual property theft situation going on," Trump said as he signed the new trade order.
Senior White House economic advisor Everett Eissenstat said the new import duties would target industrial sectors where "China has sought to acquire an advantage through the unfair acquisition or forced technology transfer from US companies."
US Trade Representative Robert Lighthizer within two weeks is due to publish a list of the products that will be slapped with tariffs.
Vice President Mike Pence hailed the new measures as just one more "promise made and a promise kept by president Trump.".
The new action "makes it clear the era of economic surrender is over," Pence said.
On Wall Street, the Dow Jones Industrial Average was down about two percent ahead of the announcement, but recovered some losses shortly after 1800 GMT.
Years of 'failed' dialogue
The new order directs the US Treasury to develop new proposals to increase safeguards on Chinese investments in the US that could compromise national security.
In addition, USTR will go after China in the World Trade Organization -- a body Trump and his officials have criticized as ineffective -- charging Beijing with preventing US companies from freely licensing their own technology in China.
White House officials said the actions capped years of efforts to encourage China to end the alleged unfair practices through negotiations.
"Those dialogues failed under the Bush and Obama administrations," White House trade adviser Peter Navarro told reporters.
Navarro said Trump had been at pains to encourage Beijing to cooperate with American entreaties to open Chinese markets and end unfair practices, inviting President Xi Jinping to the United States and traveling to Asia himself in November.
"The problem is that with the Chinese in this case talk is not cheap, it's been very, very expensive and finally the president decided we needed to move forward."
As Trump has taken progressive steps toward confrontation, Beijing has repeatedly warned that trade wars benefit no one and it will not stand idly by as Washington imposed punitive new measures.
American industry, and US agriculture in particular, as well as members of the President's own Republican party have voiced strident opposition, concerned Trump's moves could spark retaliatory measures and hurt US exporters.
You 'have to protect yourself'
But Navarro told reporters that China benefitted far more from trade relations with the United States than the reverse, meaning retaliation could be difficult for Beijing.
In testimony before a Senate committee prior to the announcement, Lighthizer said the areas that should be targeted by the new tariffs should be precisely those sectors where Beijing's economic plan outlines a vision of world dominance.
Those included aerospace and aeronautics equipment, maritime and rail transport equipment, new energy vehicles, agricultural equipment and advanced medical products.
"In every one of these, they say they want to be mostly self-sufficient in, I think, two or three years and basically world dominant by 2025," Lighthizer said.
"In some areas, you just have to protect yourself from them so you won't be in a position where US industry is not wiped out by them."
In a sometimes tense exchange, Lighthizer batted away criticism from Senators about possible collateral damage to US industries and consumers as a result of higher import prices, and in the event China retaliates against US agriculture.
And he derided as "nonsense" the claim the Trump administration has not thought through the process carefully saying trade officials designed an algorithm to target sanctions to have maximum impact on China and do minimum harm to US consumers.