Asian markets kicked the week off with sharp losses Monday as investors prepare for the US to impose hefty tariffs on a range of Chinese imports, taking their trade row to another level, reports AFP from Hong Kong.

The levies on billions of dollars of goods, which are due Friday, come after data at the weekend showed Chinese manufacturing activity slowed in June as the world’s number two economy shows signs of struggling.

Fears of a trade war have rattled world markets and particularly China’s, which are now in bear territory having fallen 20 per cent from their recent highs.

“China’s economy will slow down for the rest of the year, but we don’t need to worry about any stall yet,” Zhu Qibing, chief macroeconomy analyst at BOC International China in Beijing, said.

“The key is how international trade and the dispute between China and the US will evolve.”

On Monday, Shanghai dived 2.5 percent, while the Chinese yuan extended a retreat that has led some observers to suggest the country’s central bank is weakening the unit to offset the impact of a trade war.

While China is a key target in Donald Trump’s protectionist America First agenda, he has also set his sights on allies including the European Union and Canada, which on Friday imposed hefty tariffs on $12.6 billion of US goods in retaliation for US measures on aluminium and steel.

Tokyo tumbled 2.2 per cent as a closely watched gauge of Japanese business showed sentiment was softening.

The Bank of Japan’s Tankan report—a quarterly survey of about 10,000 companies—showed a dip in confidence from the previous three months, though economists pointed out that it is still around its highest level in more than a decade.

In other markets Seoul dropped 2.4 per cent, Sydney shed 0.3 per cent and Singapore retreated 0.9 per cent, while Taipei gave up 0.5 per cent and Wellington was flat.

Hong Kong was closed for a public holiday.

In early European trade London fell 0.7 per cent, Paris shed one per cent and Frankfurt lost 1.3 per cent.

On currency markets the euro dipped slightly but held most of Friday’s gains following data showing inflation rising and news that European Union leaders had reached a migration deal.

However there are worries about the future of German Chancellor Angela Merkel’s coalition government after her conservative interior minister offered to resign on Sunday over the issue.

Merkel had warned last week the issue of migration could decide the very future of the EU itself.

The Mexican peso rose one per cent against the dollar as anti-establishment leftist Andres Manuel Lopez Obrador swept to the presidency, with his main rivals conceding defeat and removing the risk of any dispute.

Oil prices retreated after Trump tweeted at the weekend that Saudi Arabia’s King Salman had agreed to his request to open the taps wider.

The price drop comes after last week’s surge on the back of figures indicating surging US demand and OPEC’s decision to hike output by a more modest amount than initially thought.

Investors are also awaiting the release Friday of US jobs data, which will provide another snapshot of the US economy and could provide the Federal Reserve with more ammunition to hike interest rates.