Washington will impose a 5 per cent tariff from June 10, which would then rise steadily to 25 per cent until illegal immigration across the southern border was stopped, Trump tweeted on Thursday.

Mexican President Andres Manuel Lopez Obrador said he would respond with “great prudence”.

Art Hogan, chief market strategist at National Securities in New York, called it “a very sticky situation”.

“American companies needed to find supply chains outside of China when it looked like the (US-China) trade deal is going to take much longer and one of those countries that was pointed to outside the Pacific was Mexico,” he said. Wall Street is on course for a fall of more than 6.5 per cent in May, its worst performance this year and the trigger for a flood of money into the bond market that has encouraged expectations of a US recession.

Mexico’s top diplomat for North America lashed out after the tariffs announcement, describing the move as “disastrous” and vowing to respond “vigorously.”

“If this threat is carried out, it would be extremely serious,” said Jesus Seade, undersecretary for North American affairs at the Mexican foreign ministry.

The measures also could derail efforts to enact the new North American free trade pact, the US-Mexico-Canada Agreement or USMCA.

Mexican President Andres Manuel Lopez Obrador was more restrained, saying in an early morning news conference on Friday that Mexicans and Americans are in favour of free trade and Trump’s shock announcement will not change Mexico’s plans to ratify the USMCA.

“This does not stop the process that began in order to ratify the treaty. We are going to move forward,” Mr Lopez Obrador said.

The United States imports more than $US350 billion in goods from Mexico including $US128 billion in autos, auto parts and engines key to the integrated North American auto market, which already is facing challenges and massive lay-offs.

CHINA HITS BACK AT TARIFF THREAT

Meanwhile, China said it would release a blacklist of “unreliable” foreign companies and individuals, hitting back after the United States targeted telecom giant Huawei in their escalating trade war.

The announcement was made a day before Beijing is due to increase tariffs on $US60 billion in US goods, capping a week marked by rising Chinese threats of retaliation after US President Donald Trump black-listed Huawei.

The US Commerce Department placed Huawei on an “entity list” on grounds of national security on May 16, a move that curbs its access to US-made components it needs for its equipment. A 90-day reprieve was later issued.

China’s commerce ministry announced that it will release its own list of “unreliable entities”.

Ministry spokesman Gao Feng said the list will include “foreign enterprises, organisations or individuals that do not comply with market rules, deviate from a contract’s spirit or impose blockades or stop supplies to Chinese enterprises for non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises”.

The detailed measures against firms on the list will be released shortly, Mr Gao said.

The Chinese move appears aimed at pressuring foreign companies to maintain commercial relations with Huawei — Washington is reportedly also considering adding Chinese surveillance firms to its list for alleged human rights violations.

Google, whose Android operating system is vital to Huawei phones, is among the companies that have announced that they will abide by the US order.

Another critical partner, ARM Holdings — a British designer of semiconductors owned by Japanese group SoftBank — said it was complying with the US restrictions.

“Some foreign entities have violated normal market rules and the spirit of their contracts” to cut off supplies and “take other discriminatory actions against Chinese companies damaging their legitimate rights and interests, and endangering China’s national security and national interests,” Mr Gao said, according to state-owned Global Times.

Huawei has been thrust to the centre of the trade spat, with Mr Trump suggesting last week that the company could be included in a deal.

The United States claims the company has deep links to China’s Communist-led government and warns that its equipment could serve as a Trojan horse for Chinese intelligence services.

Huawei — the world’s second smartphone maker and a leader in developing next-generation 5G networks — vehemently denies the charges.

Washington and Beijing resumed their tariffs battle earlier this month after trade talks in Washington ended without a deal, with the US side accusing Chinese negotiators of reneging on previous commitments.

The countries have exchanged tariffs on $US360 billion in two-way trade so far.

Mr Trump more than doubled punitive tariffs on $US200 billion in Chinese goods to 25 per cent this month, and launched the process to hit nearly all remaining imports from the Asian country.

China responded by announcing that it would increase tariffs on $US60 billion in American products on June 1.

The US tariffs appear to have already had an impact on Chinese manufacturing activity, which contracted more than expected this month.

Experts note that US consumers and importers bear the brunt of tariffs on products coming into the United States.

Now China is hitting back with tariffs ranging from five per cent to 25 per cent on 5410 products.

Those facing the 25 per cent hike include beauty products, sports equipment, musical instruments, wine, condoms, diamonds, wood, fabric and toys.

Chinese state media suggested this week that Beijing could also hit back by stopping exports of rare earths to the United States, cutting off key materials used to make everything from smartphones to televisions and military equipment.