Beijing unveiled a hit list that could face duties of up to 25 percent, from fresh fruit to pork and wine, though it stopped short of pulling the trigger as it indicated its readiness to negotiate an agreement.
The latest trade action sent stocks diving as fears rise that the US, which accuses China of mass theft of intellectual property and other unfair practices, could provoke a damaging trade war.
The Dow Jones Industrial Average plunged more than 700 points, while Hong Kong and Shanghai stocks sank when they opened.
"China does not want to fight a trade war, but it is absolutely not afraid of a trade war," the commerce ministry said.
Hours earlier, Trump signed an order that also could result in restrictions on Chinese investment in the US, saying it would be the "first of many" trade actions.
"We have a tremendous intellectual property theft situation going on," Trump said as he signed the new trade order, which could include duties as high as 25 percent.
The action did not immediately impose any new tariffs, but US Trade Representative Robert Lighthizer within two weeks is due to publish a list of the products that could be hit with tariffs, which will be followed by a period of public comment.
As Trump has marched towards a confrontation, Beijing has repeatedly warned that trade wars benefit no one and that it would not stand by as Washington imposed new punitive measures.
Commerce Secretary Wilbur Ross on Thursday suggested the new measures on intellectual property were in fact a way of bringing Beijing to the table, telling CNBC they were "the prelude to a set of negotiations."
China's commerce ministry warned that a 15 percent tariff on 120 goods worth almost $1 billion -- including fresh fruit, nuts and wine -- would be imposed if the US fails to reach a "trade compensation agreement" within an unspecified timeframe.
In a second step, a 25 percent tariff would be imposed on eight goods totalling nearly $2 billion, including pork and aluminium scrap, after "further evaluating the impact of the US measures on China," the statement said.
The measures were specifically in response to US steel and aluminium tariffs announced earlier this month.
The list noticeably does not include soybeans, which Chinese state-run newspaper the Global Times had suggested should be targeted by Beijing.
That would be a major blow to US farmers, as a third of their soybean exports go to China in a business worth $14 billion last year.
The political stakes are high: Trump defeated Hillary Clinton in the 10 top soybean-producing states in the 2016 election.
Vice President Mike Pence hailed the new measures, saying they made it clear "the era of economic surrender is over."
Senior White House economic advisor Everett Eissenstat said the new import duties would target industrial sectors where "China has sought to acquire an advantage through the unfair acquisition or forced technology transfer from US companies."
The order also directs the US Treasury to develop new proposals to increase safeguards on Chinese investments in the US that could compromise national security.
In addition, the US Trade Representative will go after China in the World Trade Organization -- a body Trump and his officials have criticised as ineffective -- charging Beijing with preventing US companies from freely licensing their own technology in China.
White House officials said the actions came after years of efforts to failed to convince China to change its behaviour.
Pain for US consumers?
The United States had a record $337.2 billion trade deficit with China last year.
American industry, and US agriculture in particular, as well as members of the President's own Republican party have voiced strident opposition to Trump's recent trade moves.
But White House trade adviser Peter Navarro told reporters that China benefitted far more from trade with the US, meaning retaliation could be difficult for Beijing, and that lawmakers would broadly support the measures.
Influential Republican Senator Lindsey Graham of South Carolina, a Trump ally, said he was "very pleased" with the moves, but other Republicans called on Trump to be judicious in designing the tariffs, warning of consequences for American consumers.
In testimony before a Senate committee prior to the announcement, Lighthizer said the areas targeted by the new tariffs should be precisely those sectors where Beijing's economic plan outlines a vision of world dominance.
They include aerospace and aeronautics equipment, maritime and rail transport equipment, new energy vehicles, agricultural equipment and advanced medical products.
At the same time Washington also said Thursday it would at least temporarily exempt the European Union and six other countries from the steep steel and aluminium tariffs, easing the immediate threat of a trade dispute with close US allies.