By Medha Singh, David Lawder, and Michael Martina
US stocks slumped, European markets fell and the Dow Jones Industrial Average erased its gains for the year, as a sharp escalation in the US-China trade dispute jolted the markets and triggered a rush to safer assets.
President Donald Trump, in an unexpectedly swift and sharp move, threatened to impose a 10% tariff on $200bn (€172bn) of Chinese goods and Beijing warned it would retaliate.
Mr Trump said his move followed China’s decision to raise tariffs on $50bn in US goods, which came after US announced similar tariffs on Chinese goods on Friday.
“This is an unexpected move and clearly an escalation in both trade war rhetoric, and downside risk,” said Chris Payne, managing director at GWM Investment Management.
“China will soon run out of US goods on which to impose retaliatory tariffs which will move this negotiation to a more sensible and constructive forum.”
The benchmark S&P 500 touched its lowest level in over two weeks, while the Dow fell below its 50-day and 100-day moving averages, considered key technical indicators of short- and near-term momentum.
China has underestimated Mr Trump’s resolve to press ahead with tariffs unless Beijing changes its “predatory” trade practices, a top US trade advisor said, in comments that undercut the chances of a negotiated settlement to a looming trade war between the world’s economic superpowers.
White House trade adviser Peter Navarro, a sharp critic of Chinese trade actions, said China has more to lose from any trade war.
“The fundamental reality is that talk is cheap,” Mr Navarro said, again accusing China of “predatory” trade policies.
“I think that the other side may have underestimated the strong resolve of President Donald J Trump,” Mr Navarro added. “If they thought that they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation.”
The threat of new tariffs against China pits the world’s two largest economies against each other and looks set to disrupt global supply chains for the tech and auto industries, two sectors that rely heavily on outsourced components.
In total, Mr Trump has now threatened up to $450bn in Chinese imports with tariffs.
China accused the US of “extreme pressure and blackmailing” and vowed to retaliate.
“The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the US, but of the world,” it said.