US President Donald Trump is ripping up the rulebook on trade that has been in place for more than 50 years.

His latest round of sweeping tariffs, which came into force shortly after midnight on Wednesday, hits goods from some of America’s biggest trading partners including China and the European Union with dramatic hikes in import duties.

It provoked a dramatic retaliation from China, which ratcheted up its own tariffs on products imported from America – rapidly escalating the countries’ latest trade war.

The president and his allies say his tariffs are necessary to restore America’s manufacturing base, which they view as essential to national security.

But it remains a potentially seismic action, affecting more than $2tn (£1.56bn) worth of imports, which will push the overall effective tariff rate in the US to the highest level in more than a century.

In the US, key consumer goods could see huge price rises, including an estimated 33% for clothing, and analysts are warning of near-certain global economic damage as sales in America drop, trade shrinks and production abroad falls.

As the global stock market reels, investors sell off their US government bonds and political pressure grows, the White House has worked to soothe nerves by floating the possibility of trade talks – touting conversations that have already begun with Japan, Vietnam and South Korea.

But Trump has signalled resistance to the kinds of exemptions he granted during his first term, and even if these talks are ultimately productive, country-by-country deal-making will no doubt take time.

“The primary question… is whether or not there will be negotiations,” said Thierry Wizman, a global strategist at the investment bank Macquarie. “And no one has an answer to that because it’s going to depend on the approach and the disposition of the negotiating parties.”

The US already appears set on a collision course with China – its third biggest supplier of imports last year.

Tensions intensified after the White House confirmed it was going ahead with its plan to increase the tax rates on products coming from China to 104%.

Beijing hit back early Wednesday, saying it would also tax goods imported from the US at a new rate of 84%.

In a statement before the new tariff rate was unveiled, a spokesman for the Chinese embassy in Washington called Trump’s moves “bullying” and warned that “intimidation, threat and blackmail are not the right way to engage with China”.

The rapid change has shaken US businesses with decades of ties to China, which now find themselves paralysed and unsure how this escalating trade fight might end.

“You would laugh if you weren’t crying,” said US businessman Jay Foreman, whose toy company Basic Fun! is known for classics such as Tonka Trucks and Care Bears, the vast majority of which are made in China.

He put out notice to his suppliers to halt any shipments to the US earlier this week, as the US announced it would hit goods from China with duties starting at 104%.

“We just have to hold our shipments until this thing gets sorted out,” he said. “And if it doesn’t get sorted out, them I’m going to sell down the inventory that I have in my warehouse and pray.”

Speaking to Congress on Tuesday, Jamieson Greer, who leads the office of the US Trade Representative, declined to set a timeline for how quickly talks might progress.

“The president is fixed in his purpose. This trade deficit and offshoring and the loss of jobs has persisted for too long,” he said, while acknowledging the measures might lead to a “challenging” economic adjustment.

“It is a moment of drastic, overdue change, but I am confident the American people will rise to the occasion as they have done before,” he said.

US share prices have been on a downward slide for days. The S&P 500 is now trading at its lowest level in more than a year, after seeing roughly 12% of its value wiped out since the announcement last week.

Stock markets from Japan to Germany have also been shaken, as investors assess the wider repercussions of the actions. In the UK, the FTSE 100 has dropped about 10%.

“What I’m really seeing is trepidation, uncertainty, a lot of questions, a lot of people wanting us to predict what will happen next,” said Amy Magnus, director of compliance and customs affairs for Deringer, a Vermont-based firm that is one of America’s top five customs brokers. “But I have entered into a world that I cannot predict.”

Erin Williamson, vice-president of US customs brokerage at GEODIS, a global supply chain operator, said on Tuesday afternoon that the uncertainty had prompted some of her firm’s clients to simply put shipments on pause.

“One of the top ways that you can confirm that you’re not putting your business at risk is really holding off until maybe the dust settles,” she said.

The uncertainty is raising the risks to the economy, said Ernie Tedeschi, director of economics of the Budget Lab at Yale, which is not predicting a recession in the US, but still expects tariffs announced so far this year will cost the US 600,000 jobs and lead to a roughly $3,800 hit to purchasing power for the average household.

“A lot of the market turmoil we’ve seen is not about the substance of the economic damage of tariffs on their own. A lot of it is about the uncertainty,” he said.

“Businesses and consumers don’t know what the tariff rate is going to be an hour from now… How can you invest or make plans for the future in that environment?”

Mr Tedeschi said he saw no clear end to the trade war in sight.

“Even if the administration wanted to step back, how does it save face in a way that is mutually acceptable to all the relevant players?” he said. “That’s becoming harder by the day.”

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