The world's two biggest economies are on the brink of an economically destructive trade war. Here's what experts think could happen next.

The first punches have been thrown between the United States and China in what could amount to a short-lived trade dispute with limited economic fallout or the start of yet another lengthy and painful trade war reminiscent of President Donald Trump’s first term.

China's stocks and currency came under pressure as markets returning from a week-long break were greeted by a new trade dispute with the United States and ructions in the global artificial intelligence sector.

Beijing has made its decision. After days of warning of counter measures and urging Washington to enter negotiations and "meet China halfway", it has decided to hit back – or at least threaten to retaliate with its own tariffs.

China’s tariff increases and other countermeasures were mostly symbolic and apparently designed to project strength while leaving the door open to talks.

As China and the U.S. battle over tariffs, locked in a tussle that could result in a deal or a trade war between the world's two largest economies, staying away from China's stock market is becoming the default option for foreign investors.

But Mr Trump’s most incendiary claims are reserved for China. The Communist Party, he says, “has subsidised and otherwise incentivised” Chinese firms to “export fentanyl and related precursor chemicals that are used to produce synthetic opioids sold illicitly in the United States”.

Asian equities were mixed overnight as the Philippines, Taiwan, and South Korea outperformed, Thailand underperformed, and Pakistan was closed for Kashmir Solidarity Day.

As Trump’s new 10 percent tariffs on all Chinese imports took effect, China hit back with tariffs and sanctions of its own.