China has refused to back down and vowed it will “fight to the end” after Donald Trump’s latest threat to impose a further 50 per cent tariff on all Chinese goods to the US.

Beijing on Tuesday decried as “blackmail” the American president’s demand that China withdraw its plans for 34 per cent counter-tariffs against the US.

If neither side blinks in this game of economic brinkmanship, total new levies could climb to 104 per cent this year on Chinese goods imported into the US and 34 per cent on US goods into China.

The escalating trade war has already spurred the biggest market losses since the pandemic.

“The US side’s threat to escalate tariffs against China is a mistake on top of a mistake, once again exposing the American side’s blackmailing nature,” China’s commerce ministry said in a statement on Tuesday.

“If the US insists on having its way, China will fight to the end.”

Trump said he would impose the additional 50 per cent duty on US imports from China on Wednesday if Beijing did not withdraw the 34 per cent tariffs it had imposed on US products last week.

Those Chinese tariffs, in turn, had come in response to 34 per cent “reciprocal” duties announced by Trump.

The average US tariff on Chinese goods is already set to climb to 76 per cent following Trump’s levies last week, which hit China with a tariff of 34 per cent, in addition to 20 per cent he previously imposed this year.

The moves have led economists to question whether the White House stands to gain much from hiking rates further.

“Since China already faces a tariff rate in excess of 60 per cent, it doesn’t matter if it goes up by 50 per cent or 500 per cent,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

“What China can do is stop US farming purchases, match US tariffs and expand its export controls across the periodic table of chemical elements.”

Australian market rebounds

After a shocking start to what could remain a volatile week, Australian shares recovered some ground on Tuesday after a few days of heavy losses.

But analysts warn volatility triggered by US tariffs could have a long way to go.

Meanwhile, the odds are shortening for the Reserve Bank to cut Australia’s rates by 50 basis points at its next meeting as global financial turmoil weighs heavily.

Though most economists do not view an Australian recession as a realistic chance, the prospect of lower growth and higher unemployment as a result of Trump’s tariffs has raised expectations of an outsized RBA cut.

Deutsche Bank on Tuesday (AEST) became the first major bank to tip Australia’s central bank to lower rates by half a percentage point in May.

Australia is relatively well-positioned to weather the direct impact of US tariffs, but is vulnerable to a slowdown in key trading partners in Asia, especially China, said chief economist Phil O’Donaghoe.

“An aggressive RBA response is appropriate, and consistent with precedent,” he said.

Markets have priced in the chance of a 50 basis point cut at 96 per cent.

Opposition Leader Peter Dutton attacked Treasurer Jim Chalmers for pointing this out, as the Coalition tries to position itself as a superior economic manager in a time of economic uncertainty.

“The Treasurer is out there talking about a 50-point reduction in interest rates, which means, obviously, that he sees a recession coming for our economy,” Dutton said.

“He wouldn’t be talking about 50 points as a reduction next month if he didn’t believe that there was going to be a significant souring of the Australian economy on his watch.”

Chalmers’ comments on Monday were in the context of market pricing and he was at pains to point out it was neither a prediction nor a suggestion of his own.

Updated Treasury forecasts did not predict a recession in Australia and growth was actually set to accelerate over the coming years, he added.

On Tuesday, the S&P/ASX200 was up 121.1 points, or 1.65 per cent, to 7,464.1 in early trading as the broader All Ordinaries lifted 137.1 points, or 1.80 per cent, to 7,659.8.

The rebound came after the two indexes each plummeted more than 4.1 per cent on Monday, erasing $109 billion from the top 500 stocks.

Wall Street closed mostly lower overnight with the S&P500 giving away 0.23 per cent after a wild but short-lived three per cent rally on news of potential tariff delays, which was later denied by US President Donald Trump.

Investment giant Goldman Sachs has increased its expectations of a US recession to 45 per cent, and BlackRock boss Larry Fink has mused the world’s largest economy is probably already contracting.

“If that is true, we are likely a month or two away from seeing a run of grim growth data accompanied by higher inflation readings,” IG Markets analyst Tony Sycamore said.

Ten of 11 local sectors were trading higher by midday AEST with IT stocks taking the lead, up more than four per cent, and consumer discretionary stocks up 2.8 per cent, while utilities stocks lost 0.2 per cent.

Monday’s heavy losses in energy stocks and materials had narrowed by midday, up 3.2 per cent and 2.8 per cent respectively, as the oil price and iron ore miners rebounded.

Financials also bounced 0.8 per cent after tanking 4.8 per cent on Monday, with CBA up 1.4 per cent, Westpac up 0.2 per cent and ANZ and NAB eking out 0.3 per cent gains by lunchtime.

Oil prices have rebounded slightly but remain at three-year lows, as tariff-induced global growth concerns weigh on crude demand expectations, with Brent trading at $US64.70 a barrel.

Ongoing uncertainty in markets would likely cause volatility for some time, Moomoo market strategist Jessica Amir said.

“Investors that are not into riding rollercoasters should sit back until May or June, which is how long US Treasury Secretary Scott Bessent said tariff negotiations could take,” Ms Amir said.

“While they are sitting on a big cash pile, investors need to see certainty before they’ll ‘buy the dip’.”

Gold was down for a third straight session, shedding 2.4 per cent to $US2,963.19 per ounce.

The Australian dollar, which has plummeted more than five per cent since the “Liberation Day” tariffs were announced, is buying 60.17 US cents, up slightly from 60.14 US cents on Monday at 5pm.

-with AAP