By Devika Krishna KumarNEW YORK China said on Friday it would impose tariffs on U.S. crude oil imports for the first time, sending prices down nearly 4% to two-week lows as the escalating bilateral trade war fed worries over a slowdown in global oil demand.Beijing said crude would be among the U.S. products hit by tariffs of 5% as of Sept. 1. U.S. President Donald Trump responded later in the day saying starting on Oct. 1, the 25-percent tariffs on $250 billion worth of Chinese goods will rise to 30%. Tariffs on remaining $300 billion due to begin on Sept. 1 will now be set at 15%, versus 10%.The trade war between the world's two largest economies has dragged on for more than a year and roiled financial markets. Though Chinese and U.S. trade negotiators held discussions as recently as this week, neither side appears ready to make a significant compromise and there have been no signs of a truce in the near term.China, one of the world's biggest crude importers, has sharply lowered U.S. shipments from a record high hit last year. With the latest tariffs, purchases are likely to grind to a halt, traders and analysts said.A shale boom has helped the United States become the world's largest oil producer, ahead of Saudi Arabia and Russia, and exports have surged to a record above 3 million barrels per day (bpd) after a ban was lifted in late 2015."The tit-for-tat trade war now has the oil market officially caught in the crossfire, this time with China striking the heart of Trump's traditional base of support of U.S. oil producers," said Michael Tran, director of energy strategy at RBC Capital Markets in New York."With China being the world's foremost crude import growth region, U.S. producers need China, not the other way around," he said. "The U.S. will have to find alternative buyers for their crude, which will be a challenge given the weakening global demand backdrop."U.S. shipments to China have made up about 6% of total U.S. crude exports on average so far this year, according to data from the Department of Energy and the Census Bureau."This escalation of the U.S.-China trade war is another step in the wrong direction, the consequences of which will be felt by American businesses and families," Kyle Isakower, vice president of regulatory and economic policy at the American Petroleum Institute (API), the top lobbying group for U.S. oil and gas drilling, said in a statement."We urge the Administration to quickly come to a trade agreement with China that would lift all tariffs under Section 301, including the damaging retaliatory tariffs on American energy exports."U.S. West Texas Intermediate (WTI) crude futures (CLc1) slumped as much as 3.8% to $53.24 a barrel on Friday, the lowest since Aug. 9, before ending the session at $54.17. The rising trade war is likely to weigh on U.S. crude more than international benchmark Brent (LCOc1), market sources said."Chinese buyers will (now) be looking to purchase Brent and Dubai-based crude oil and I would expect that to result in a widening of the Brent-to-WTI spread," said Andy Lipow, president of Lipow Oil Associates in Houston."In essence what you've done is created new demand for Brent-based crude oil at the expense of U.S.-origin crude."U.S. crude exports to Asia so far in August indicate weaker flows around 892,000 bpd, down by 360,000 bpd from last month, according to market intelligence firm Kpler.The drop was driven by a decrease in shipments to South Korea and China, down by 114,000 bpd and 52,000 bpd respectively month-over-month in August, the firm's vessel-tracking data showed. "In a world where margins are thin, a 5% tax is significant," said Jim Burkhard, head of oil market analysis at IHS Markit in Washington.