The risks of "a more meaningful impact on global trade and growth have increased", Morgan Stanley economists said in a report. China's Commerce Ministry criticized the White House action as blackmail and said Beijing was ready to retaliate.
On Monday President Donald Trump threatened tariffs on almost all of China's products shipped to the United States unless Beijing agrees to sweeping trade concessions. And he's accusing Canada of imposing large tariffs on U.S dairy products to the detriment of American farmers.
Trump said the tariffs were "essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs".
The Trump administration, on the other hand, could impose tariffs on up to $400bn of Chinese goods.
"China has pursued an implicit strategy of trading domestic market share for new foreign technology", the report said.
Secretary of State Mike Pompeo made the remarks at the Detroit Economic Club as global markets reacted to trade tensions between the US and China.
That is approaching the total value of all goods that China exported to the United States in 2017.
In a statement, Trump says he has an "excellent relationship" with Xi, "but the United States will no longer be taken advantage of on trade by China and other countries in the world".
Chinese companies listed in the US took sharp losses.
The Dow Jones industrials are down 291 points, or 1.2 percent, to 24,697, after dropping more than 400 points in morning trading. Boeing's stock shed 4.3 percent, Caterpillar 4 percent and GE 2.2 percent.
The dispute is part of broader USA complaints about global trading conditions that have prompted Trump to raise duties on steel, aluminum, washing machines or solar panels from Canada, Europe, Japan and South Korea.More news: Trump on House GOP Immigration Compromise: ‘I Certainly Wouldn’t Sign’ It
Last week, Trump confirmed that the U.S. would impose 25% tariffs on $50bn worth of Chinese goods.
Mr Trump added: "These tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced".
The ministry said it would fight back with "quantitative and qualitative" measures, suggesting Beijing's countermoves could go beyond tariffs, deepening the rift between the two countries.
Some companies have reported Beijing is meeting with Chinese businesses to discuss shifting contracts for United States goods and services to suppliers from Europe or Japan, or to local Chinese firms, Parker said.
The National Retail Federation asked Congress to intervene for USA business on the tariffs issue. And his hard-line trade adviser, Peter Navarro, said Tuesday that the Office of the U.S. Trade Representative and the Council of Economic Advisers were working to spare consumers.
The Trump administration has announced plans to target products from China including machinery, electrical goods and vehicles.
The initial list of 1,102 Chinese products facing tariffs, covering 28 closely printed pages, was issued June 15.
China, of course, imports nowhere near $250 billion, let alone $450 billion in goods from the US each year that it could tax in retaliation.
The 25 percent duties imposed by China go into effect July 6, and cover high-profile USA products such as electric vehicles, soybeans, whiskey, orange juice, lobsters, salmon and cigars. They include electric cars, whiskey and soybeans - a politically and economically vital export of America's heartland, where Trump enjoys support. Around 3 million Chinese visit the United States annually spending tens of billions of dollars.
The tariffs on Chinese imports are the latest in a spate of protectionist measures unveiled by Trump in recent months.
With the trade feud escalating and no further talks scheduled between the two governments, stocks dropped sharply Tuesday.