President Donald Trump says he has "hereby ordered" American companies to leave China, after Beijing announced plans to slap new tariffs on US goods.
The White House did not immediately say what authority the president had to compel private firms to quit a country.
President Trump announced a 5% increase on tariffs on Chinese imports, after China unveiled plans for duties of 10% on $75bn (£61bn) of US goods.
The latest salvos in the trade war sent global financial markets tumbling.
The Dow Jones Industrial Average lost more than 620 points, or 2.4%, while London's FTSE 100 and the German DAX also turned negative.
"In the spirit of achieving Fair Trade, we must Balance this very unfair Trading Relationship," President Trump tweeted.
...unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%...— Donald J. Trump (@realDonaldTrump) August 23, 2019
"Our great American companies are hereby ordered to immediately start looking for an alternative to China," Mr Trump tweeted earlier on Friday.
China's new tariffs will range between 5% and 10% and apply to more than 5,000 goods coming from the US.
Agricultural goods, crude oil and small aircraft are among the targeted items.
Mr Trump hit back, tweeting that $250bn of Chinese imports, currently taxed at 25%, would from now on be taxed at 30%.
Beijing also said it would revive a 25% tariff on US car imports that it lifted earlier in 2019 in a goodwill gesture as the two countries tried to negotiate a trade agreement.
Carmakers warned that the tax would put US jobs at risk.
"When these tariffs were initially imposed by China in 2017, American exports of finished vehicles dropped by 50%," said John Bozzella, who represents car manufacturers. "We can't let that happen to American workers again."
On 1 August, President Trump unveiled a further 10% tariff on $300bn of Chinese goods, blaming China for not following through on promises to buy more American agricultural products.
That tariff was expected to be introduced on 1 September, but less than two weeks later Mr Trump delayed that date to 15 December, partly due to concerns it might hit Christmas shoppers.
China said it planned to impose its new tariffs in two stages on 1 September and 15 December.
Mr Trump also turned his fire on Friday against the head of the US central bank after he spoke out about the economic risks of a trade war with China.
The president questioned whether Federal Reserve chairman Jerome Powell was a greater "enemy" than China's leader Xi Jinping.
At a symposium of central bankers in Jackson Hole, Wyoming, on Friday Mr Powell warned that trade tensions were hitting the global economy.
He also said the Fed - the world's most powerful central bank - didn't have a "rulebook" to deal with the fallout.
The White House moved to play down the new tariffs. President Trump's trade adviser, Peter Navarro, told CNN that the Chinese duties were "well signalled," adding: "This isn't breaking news."
He said that talks between the two countries were on schedule and argued that the tariffs were not hurting Americans. "Consumers aren't feeling the pain [of the trade war] and we are focused on making sure they [China] feel the pain not us."
He added that the economic slowdown was the fault of the US Federal Reserve, which has drawn criticism from Mr Trump for not making bigger cuts in interest rates.
Mr Navarro said the central bank should lower the benchmark interest rate further to stimulate growth.
US bond markets have recently sent warning signals of an impending recession. However, equities are trading at near record highs and employment is at its highest level in almost 50 years.
Mr Trump also said on Twitter on Friday that the economy was "strong and good", while "the rest of the world is not doing so well".
Stock markets in the US fell following news of China's tariffs, but then recovered, only to fall again in response to Mr Trump's tweets.