Trade war escalates as China raises its retaliatory tariff on the U.S. to 84%, effective Thursday

U.S. stock index futures fell sharply on Wednesday after China announced more levies on U.S. goods, striking back against President Donald Trump's reciprocal tariffs that took effect earlier in the day.

The world's second-largest economy would impose additional tariffs of 84 per cent on all U.S. goods as of Thursday, up from the 34 per cent previously announced, China's Finance Ministry said.

As hopes of concessions faded and tariffs on dozens of countries began, investors ramped up their exit from stocks, industrial commodities and even government bonds.

The CBOE Volatility index — seen as Wall Street's "fear gauge" — was hovering near its highest level since August.

"I do think that this is a game of 'chicken' in the sense that both sides are upping the barriers," said Peter Andersen, founder of Andersen Capital Management.

"What we're seeing now is a complete correlation between any news related to tariffs and the stock market reactions."

Prospects of tariff deals had lifted U.S. equities on Tuesday, sparking a rally early in the session, though gains were not sustained and all three major indexes closed down.

Since Trump unveiled his tariffs last Wednesday, the S&P 500 has shed more than $5.83 trillion US in market value and will confirm a bear market if it closes more than 20 per cent below its record high. As of last close, it was down 19 per cent from its peak.