World stock markets plunged on Monday as Beijing parried US President Donald Trump's latest tariff announcements by moving to let China's Yuan currency devalue and halting purchases of US agricultural products.
The rebuttal sparked Wall Street's worst selloff of the year and also led to significant declines in leading bourses in Europe and Asia amid fears the escalation of the months-long conflict will further dim the global outlook.
Tokyo stocks opened on Tuesday nearly three percent down.
After markets closed in New York, President Donald Trump fired back, formally designating China a currency manipulator.
There is a feeling that China could inflict a lot more pain on the US in terms of the trade spat, and many traders are worried the economic conflict will rumble on for some time, said IG analyst David Madden.
China's moves came after US President Donald Trump announced plans last week to impose new tariffs on US$300 billion in Chinese imports, sparking Wall Street's worst week of the year.
On Monday, the Chinese yuan fell in offshore trade to its lowest level against the dollar since August of 2010, fueling speculation that Beijing was allowing currency depreciation to counter threatened US tariffs and drawing sharp criticism from US President Donald Trump of what he called a major violation which would greatly weaken China.
Trump's latest tariffs would make China less keen to achieve a deal and more determined to prepare itself for long-term economic tension with the US, Kujis said.
Later, Chinese state media reported that Chinese firms have stopped buying US farm produce. China's purchase decision means more pain for the US agricultural sector, which could hit the farm states that helped elect Trump in 2016.
While the dollar rose against the yuan, it retreated against the euro and yen as investors bet the Federal Reserve was now more likely to cut interest rates.