Global markets rocked by escalating trade fights

President Donald Trump's latest tariff proposal “seriously violates the consensus" reached with Chinese President Xi Jinping at the G20 in Osaka and "is not conducive to solving the problem,” China’s Ministry of Commerce spokesperson said in a written statement. 

"If the US implements the tariff, China will have to take necessary countermeasures to resolutely defend the core interests of the country and the fundamental interests of the people. All the consequences will be borne by the US,” the spokesperson added.

The Ministry of Commerce said the move would have "a chilling effect" on the world economy.

"The Chinese side always believes that there is no winner in the trade war. It does not want to fight but is not afraid of a fight."

South Korea says it will respond in kind after Japan removed it from a list of countries that receive preferential treatment on trade. It's the latest move in a dispute that threatens to reduce cooperation between two of the largest economies in Asia.

South Korea's finance minister, Hong Nam-ki, said Friday that his government would take steps next week to exclude Japan from its own list of preferred trade partners.

Japan said earlier on Friday that it would remove South Korea from a so-called white list. Japanese exports to South Korea will now require additional screening to make sure they are not used for weapons and military applications.

The spat between the two countries started last month when Tokyo placed controls on exports of three chemical materials to South Korea. The materials are used to make computer chips, among other things.

Tension between the two countries has been rising for months, stemming in part from Japan's colonial rule over the Korean peninsula. South Korea's top court recently ruled that its citizens can sue Japanese companies for using forced Korean labor during World War II. Japan has denied that the two issues are linked.

The Chinese government will have to be very careful in its approach to future trade talks with the Trump administration, analysts say.

“With the direct hit to China’s economy still manageable, President Xi has more to lose – not least in appearing personally to be caving in – than he would gain from making changes to industrial policies that both he and the White House hawks believe have served China well," Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note Friday.

"As such we expect the tariffs to go ahead and furthermore that they will be raised, to 25% on all Chinese goods imports to the US, before long.”

Analysts at Citi Research said in a report Friday that they believe "China will become more cautious in dealing with Trump on trade."

"Rather than giving in to the US demand, we expect China will firm up its bottom lines and formally use the strategy of waiting it out," wrote analysts Li-Gang Liu, Xiaowen Jin and Xiangrong Yu. 

Japan dropped South Korea as a preferred trading partner on Friday, escalating a dispute that threatens the global supply chain for smartphones and electronic devices.

The decision to remove South Korea from a so-called white list means that Japanese exports to South Korea now require additional screening to make sure they are not used for weapons and military applications.

South Korea was the only Asian country on the white list. Revoking its preferred status means the country will receive the same treatment as other Asian countries and territories, including Taiwan, Japan's Chief Cabinet Secretary Yoshihide Suga said Friday.

"This is not a trade ban," he added.

That's not how Seoul sees it. South Korean President Moon Jae-in said the move was "reckless" and he threatened retaliation. His party accused Japan of waging "economic war."

The new restrictions go into effect August 28.

European stocks have joined the global sell-off sparked by President Donald Trump's threat to impose new tariffs on China.

Here's a summary of the early action:

Global investors are running scared. "There hasn't been much data to distract from trade war overnight," Societe Generale strategist Kit Juckes wrote in a research note.

The next big event on the global markets agenda is the US jobs report for July, which will be published at 8:30 a.m. ET.

President Donald Trump said Thursday that he would add new tariffs on $300 billion of Chinese-made products from September 1, which would essentially mean all Chinese goods coming into the United States are taxed.

Later in the day, Trump said in remarks to reporters at the White House that he might still ratchet tariffs up to 25%, as he's previously threatened — or even higher.

"It can be lifted in stages so we're starting at 10% and it can be lifted up to well beyond 25%," the president said. "But we're not looking to do that, necessarily."

President Trump issued his new threat of tariffs on China following a mid-morning meeting in the Oval Office with his trade team to update him on talks that wrapped this week in Shanghai, according to an administration official familiar with the matter.

The team included Treasury Secretary Steven Mnuchin and US Trade Rep. Robert Lighthizer.

Trump wasn't pleased that China didn't offer concrete promises to purchase American agricultural products during the talks, something he believed was agreed to when he met with Chinese President Xi Jinping in June, according to the official.

While the trade officials told Trump they believed there is still potential for a deal to be struck with China, they said they were still far off any kind of agreement.

Trump issued the four-tweet message announcing new tariffs starting in September with input from Mnuchin and Lighthizer, according to the official.