USA stocks fell on Wednesday, breaking a four-session streak of gains after Washington's threat to impose tariffs on an additional $200 billion worth of Chinese goods fanned trade war fears, while a sharp drop in oil prices hit energy shares.
More than 6,000 items could be affected - including burglar alarms, auto tyres, handbags, baseball gloves, carpets, toilet paper, dog food, and hundreds of food products.
The Aussie, considered a liquid proxy for China-related trades, fell 0.5 percent against the dollar to US$0.7418.
Donald Trump is readying tariffs on another $200 billion in Chinese imports, escalating a trade war between the world's two biggest economies.
On Friday, Washington had imposed additional 25 percent tariffs on $34bn of Chinese imports, prompting Beijing to immediately respond with proportionate tariffs on $34bn American goods including seafood and soybeans.
The US trade deficit in goods with China ballooned to a record $375.2bn a year ago, stoking Trump's anger.
Investor confidence started to return early this week amid a momentary lull in the trade war, following Beijing's retaliation tariffs on U.S. imports last week after Trump hit China with a 25 per cent tariff worth $34bn on imports.
"Rather than address our legitimate concerns, China has begun to retaliate against United States products", Lighthizer said in a statement.
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'TARIFFS ARE TAXES' Senate Finance Committee Chairman Orrin Hatch, a senior member of Trump's Republican Party, said the announcement "appears reckless and is not a targeted approach".
China hit back with its own levies - targeting USA products such as mixed nuts and whiskey.
"At the same time, we call on the global community to work together to safeguard the rules of free trade and the multilateral trading system and jointly oppose trade hegemony", it added.
Farmer Terry Davidson walks through his soy fields July 6, 2018, in Harvard, Illinois, the same day China imposed retaliatory tariffs aimed at the United States soybean market.
There is a two-month period of public comment on the latest proposed list before the tariffs get imposed.
European stock markets are expected to follow Asia's lead, as economics warn that a trade war would cause serious economic harm. Hong Kong's Hang Seng lost more than 1 per cent, as did Japan's Nikkei as the yen received something of a safety bid.
"Sometimes our friends, when it comes to trade, are treating us worse than the enemies", Trump said at a press conference on June 29.