The US government has announced plans to limit Chinese textile imports, upping the ante in a simmering trade row between the two countries.
China's textile sector is booming
The Commerce Department said it planned to set quotas limiting growth in Chinese textile imports to 7.5% a year.
The move follows a sharp increase in shipments of Chinese clothing products over the past 14 months.
US Commerce Undersecretary Grant Aldonas said the surge in imports had been helped by government subsidies.
"It's not just a question of a dramatic surge, but a heavily state-owned industry that's subsidised by state-owned banks," he said.
The financial markets reacted nervously, with the euro rising to an all-time high of $1.19 amid fears that the tentative US economic recovery may be derailed by a return to protectionist trade policies.
In Asia, the dollar slid to almost 108 yen, nearing a three-year low.
And gold prices momentarily breached the $400 an ounce mark - the first time they have done so in seven years - as investors sought a safe haven.
Thetextiles decision comes days after the World Trade Organisation confirmed its original ruling that steel import tariffs imposed by the US last year were illegal, setting the scene for retaliatory trade sanctions by the European Union.
The move underlines Washington's determination to bring its spiralling trade deficit with China - forecast to reach $120bn this year - under control.
The US government fears the flood of Chinese imports is squeezing domestic manufacturers, forcing them to shed jobs.
Spurred on by US industry lobby groups, the White House has previously pressured Beijing to lift currency controls which keep the Chinese yuan artificially low against the dollar.
But China has held firm, rebuffing persistent calls for it to alter its currency regime.
US textile industry associations, which claim that 300,000 US textile jobs have disappeared since 2001, welcomed the prospect of import quotas.
"Today's decision sends a strong signal to China that they should take immediate steps to cease their attempts to dominate international trade in textiles and apparel," said Cass Johnson, interim president of the American Textile Manufacturers Institute.
But US clothing makers, who import large quantities of textiles from China, said quotas would simply encourage importers to source textiles from other low-cost Asian countries.
"Not a single job is going to come back to the US as a result of this decision," said Laura Jones of the US Association of Importers of Textiles and Apparel.
The US Commerce Department stressed that it may modify its textile quota plans once it has held talks with the Chinese.