The Australian share market has plummeted more than 2 per cent, following a similar drop on the US stock markets overnight brought on by President Donald Trump’s shock decision to impose tariffs on Chinese imports.

The ASX 200 lost almost 2 per cent of its value on Friday, having fallen steadily all day.

Overnight Mr Trump announced plans to impose roughly US$50 billion ($65 billion) in tariffs on Chinese goods. This coincided with the official imposition of general tariffs on steel and aluminium imports into the US, from which Australia is provisionally exempt.

But in addition to the dramatic decision to put up tariffs on Chinese imports, the Trump administration also hinted overnight it may rescind Australia’s exemption from the steel and aluminium tariffs.

A White House spokesperson said Australia’s exemption would only last until May 1, “pending discussions of satisfactory long-term alternative means to address the threatened impairment to US national security”.

“By May 1, 2018, the President will decide whether to continue to exempt these countries from the tariffs, based on the status of the discussions,” the White House said.

Investors respond to Trump’s China tariffs

The US Dow Jones industrials index dropped more than 700 points, or 3 per cent, at the close of trade Friday morning (Thursday local time), while the S&P 500 index dropped 68 points, or 2.5 per cent, erasing its gain for the year.

Mr Trump announced the tariffs earlier Friday, saying he was looking for “reciprocal” trade terms for US companies.

“We’ve spoken to China and we’re in the midst of a very large negotiation,” he said at the White House as he signed a memorandum approving the measures.

“We’ll see where it takes us.”

China has already warned that it will take “all necessary measures” to defend itself, raising the prospect of a trade war between the world’s two largest economies.

Industrial and technology companies, which depend heavily on foreign trade, took some of the worst losses on Wall Street, while aerospace company Boeing, industrial equipment maker Caterpillar and Microsoft all fell sharply.

Bond prices surged as investors sought cover, sending yields lower.

Mr Trump, meanwhile, blamed the US-China trade imbalance for costing American jobs.

“It is the largest deficit of any country in the history of our world,” he said, adding the tariffs would make the US stronger and richer.

The White House earlier said Mr Trump would direct the Office of the US Trade Representative to publish a list of proposed tariffs for public comment within 15 days.

The President will also ask Treasury Secretary Steven Mnuchin to formulate a list of restrictions on Chinese investment.

Industry groups petitioned Mr Trump earlier this week, warning that: “The imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the US economy, provoking retaliation; stifling US agriculture, goods, and services exports, and raising costs for businesses and consumers.”

The announcement of tariffs marks the end of a seven-month investigation into the tactics China has used to challenge US dominance in technology.

Among the alleged Chinese strategies were claims that hackers had been commissioned to steal commercial secrets and demands that US companies hand over trade secrets in exchange for access to the Chinese market.

“It could be a watershed moment,” Stephen Ezell, vice president of global innovation policy at the Information Technology & Innovation Foundation think tank, told AP after the announcement of the tariffs.

“The Trump administration’s decision to go down this path is illustrative that previous strategies have not borne the hoped-for fruit.”

– with AAP