Chinese stocks tumbled overnight after Donald Trump added to trade war concerns with a threat to impose a further $200bn (£152bn) of tariffs against China.

Zhang Yidong, strategist at Industrial Securities, said it was the “darkest hour… the most agonizing moment in the first half” as the Shanghai Composite Index fell to finish the Tuesday trading session down 3.8 per cent, at a two-year low.

The Trump administration announced last week it would place a 25 per cent tariff on $50bn of Chinese goods as punishment for alleged intellectual property theft. China responded by promising its own tariffs on an equivalent amount of American products.

On Monday, Mr Trump directed US Trade Representative Robert Lighthizer to identify $200bn worth of Chinese goods on which to impose tariffs if Beijing carried out that promise.

“China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology,” the president said.

“Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.”

He added: “But the United States will no longer be taken advantage of on trade by China and other countries in the world.”

Seema Shah, a strategist at Principal Global Investors, warned investors should be worried about the latest escalation in trade tensions.

“Recall that the original tariffs on about $50bn worth of Chinese imports motivated sharp declines in equity markets, despite not being expected to have a meaningful impact on the global economy,” she said.

“The latest ratcheting up in the trade dispute may trigger even more severe market turmoil. After all, not only will this latest round of tariffs have a direct negative impact on China’s growth outlook and the rest of the Asia region via the integration of global value chains, but China’s inevitable retaliation will surely hurt the US economy in turn.”

Ms Shah also noted that the “lurch towards protectionism will be felt most acutely in already vulnerable emerging market economies”.

Fiona Cincotta, senior market analyst at City Index, said: “The list of who threatened what is getting long. With both sides seemingly determined to retaliate it is hard to see how this will end without a bloodshed for business, particularly US businesses. The Federal Reserve’s officials have already warned that Trump’s tariffs are scaring companies from making new investments.

“Ironically, though the two countries had made some progress during trade talks earlier this year when China agreed to reduce the trade imbalance with the US, the deal ended up null and void after Trump resumed his threats almost as soon as the Chinese delegation left Washington.”

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