The benchmark ASX200 index fell 95.0 points (1.6 per cent) to 5,842.2, at 10.15am, while the All Ordinaries index dropped 94.4 points to 5,948.8.
Mr Trump has slapped China with tariffs on up to $60 billion of imports to retaliate against the “theft” of American intellectual property.
The move is certain to send tensions soaring between the world’s two largest economies and has already sent markets tumbling.
The President warned it would be the “first of many” trade actions and signed the order that also could result in restrictions on Chinese investment in the United States.
Wall Street’s Dow Jones closed down 724 points following the announcement.
The 3 per cent drop comes as Beijing vowed to defend itself against Mr Trump’s move, renewing fears of a trade war.
Beijing has already warned it would not take any such move lying down.
In a stinging editorial for the Global Times, the communist party’s official mouthpiece, editor in chief Hu Xijin yesterday warned China will retaliate.
Beijing could restrict US soybean imports and instead import from countries such as Brazil he said while suggesting the US will find it difficult to replace certain products it imports from China.
“China does not want a trade war but the US is forcing our hand and we absolutely won’t be calculating whose losses would be greater,” Mr Hu said.
“You cut flesh from me and I’ll make sure to knock out your front tooth.
“China’s tolerance for pain is greater than the US.”
Just this week, Chinese Premier Li Keqiang urged Washington to “act rationally instead of being led by emotions” over the tariffs.
Senior White House economic adviser Everett Eissenstat said the new import duties would target industrial sectors where “China has sought to acquire an advantage through the unfair acquisition or forced technology transfer from US companies.”
Signing the new trade order, Mr Trump explained why he was taking the action.
“We have a tremendous intellectual property theft situation going on,” he said.
Under the move, Mr Trump will target Chinese imports only after a consultation period.
This will give industry lobbyists and legislators a chance to water down a proposed target list which runs to 1300 products, according to the Associated Press.
China will also have room to respond to Mr Trump’s actions.
Mr Trump did however appear to strike a conciliatory tone saying he viewed Beijing as a friend.
“We have spoken to China and we are in the middle of negotiations,” he said while reaffirming unfair trade was one of the main reasons he had been elected in 2016.
Mr Trump tweeted that the move was fulfilling an election pledge to protect the country’s job and investment.
He has blamed China for the loss of 60,000 factories and six million US jobs.
The US trade deficit with China ran to a record $375 billion last year ($A486 billion) and Washington has long accused Beijing of forcing US companies to turn over proprietary commercial information and intellectual property as a condition of operating in China.
IS TRUMP JUST PLAYING INTO CHINA’S HANDS?
Some critics have argued Mr Trump’s push to contain China could backfire.
Writing in Bloomberg, journalist Michael Schuman suggests the president may actually be taking pressure off the Chinese leader, rather than ramping it up.
‘Trump may be unintentionally aiding Xi’s long-term economic agenda,” he writes. “Though Xi and his policy team happily champion globalization and free trade in public, the Chinese president has shown himself to be every bit the economic nationalist Trump is — possibly more so.”
He also said exports no longer play as large a role in China’s growth story as they once used to, with China’s trade balance having shrunk from 7.4 per cent of GDP to 3.5 per cent last year.
“Unless the tariff battle escalates dramatically, the hit to Chinese growth from U.S. duties should be minimal.”
There’s also an argument that this whole saga just plays into the Communist Party’s propaganda, and the idea that Mr Xi is bringing China “back” to its proper place on the world stage, after decades of interference from big Western bullies.
The US Trade Representative’s office will present a list of products that could be targeted primarily from the hi-tech sector.
There will also be a 60-day consultation period before any definite move comes into force.
White House officials told a briefing ahead of the announcement that the administration was eyeing tariffs on $US50 billion in Chinese goods.
They said the figure was based on a calculation of the impact on the profits of US companies that had been forced to hand over their intellectual property as the price of doing business in China.
However, there was no explanation of the difference between the numbers provided by White House officials and Mr Trump’s $US60 billion figure.
Washington also said it would at least temporarily exempt the European Union and six other countries from steep steel and aluminium tariffs announced this month, easing the immediate threat of a trade dispute with US allies.
The tariff announcement comes as Australia and South Korea made the list of allies to be spared from tariffs on aluminium and steel.
ECONOMIC SURRENDER OVER
US Trade Representative Robert Lighthizer within two weeks is due to publish a list of the products that will be slapped with tariffs.
Vice President Mike Pence hailed the new measures as just one more “promise made and a promise kept by president Trump.”.
The new action “makes it clear the era of economic surrender is over,” Mr Pence said.
The new order directs the US Treasury to develop new proposals to increase safeguards on Chinese investments that could compromise national security.
In addition, USTR will go after China in the World Trade Organisation – a body Mr Trump and his officials have criticised as ineffective – charging Beijing with preventing US companies from freely licensing their own technology in China.
White House officials said the actions capped years of efforts to encourage China to end the alleged unfair practices through negotiations.
“Those dialogues failed under the Bush and Obama administrations,” White House trade adviser Peter Navarro told reporters.
Mr Navarro said the President had been at pains to encourage Beijing to co-operate with American entreaties to open Chinese markets and end unfair practices, inviting President Xi Jinping to the US and travelling to Asia himself in November.
“The problem is that with the Chinese in this case talk is not cheap, it’s been very, very expensive and finally the president decided we needed to move forward.”
However American industry, and US agriculture in particular, as well as members of the President’s own Republican party have voiced strident opposition, concerned Mr Trump’s moves could spark retaliatory measures and hurt US exporters.
Mr Navarro said China benefited far more from trade relations with the US than the reverse, meaning retaliation could be difficult for Beijing.
In testimony before a Senate committee prior to the announcement, Mr Lighthizer said the areas that should be targeted by the new tariffs should be precisely those sectors where Beijing’s economic plan outlines a vision of world dominance.
Those included aerospace and aeronautics equipment, maritime and rail transport equipment, new energy vehicles, agricultural equipment and advanced medical products.