US stocks dived in another dizzying day of trading after President Donald Trump promised stiff tariffs on imported steel and aluminium.
The move raised the threat of escalating retaliation by other countries and higher inflation. The Standard & Poor's 500 index erased nearly all of its gains for the year.
Indexes had been bouncing between modest gains and losses earlier in the day, until Trump told industry executives around midday that they'll "have protection for the first time in a long while" and that he was planning to impose tariffs of 25% on steel imports and 10% on aluminium imports next week.
"I don't know if this will cause a trade war, and obviously that's the fear," said Lamar Villere, portfolio manager at investment manager Villere & Co.
"But this is exactly what candidate Trump said he would do - he said he would be very protectionist and America First."
The Standard & Poor's 500 index tumbled 36.16 points, or 1.3%, to 2,677.67.
It is the third straight day where the index has lost at least 1%. It had only four such days last year.
The S&P 500 is now up just 0.2% for the year after having its best January in 20 years.
The Dow Jones industrial average dropped 420.22 points, or 1.7%, to 24,608.98, and the Nasdaq composite fell 92.45, or 1.3%, to 7,180.56.
As a candidate, Trump campaigned on an America First trade policy, and a big fear for investors has been that increasingly nationalistic governments will impose barriers that hurt the global economy and trade, as well as profits for US exporters.
Apple, the most valuable US company, got 63% of its sales from outside the United States in its latest fiscal year.
European Commission President Jean-Claude Juncker said the European Union would take retaliatory action if Trump went ahead with his plan.
He vowed that "the EU will react firmly and commensurately to defend our interests".
Shares of US steelmakers surged on the tariff news. US Steel rose 2.50 dollars, or 5.7%, to 46.01 dollars. But shares of companies that use lots of steel fell, as did exporters.
Industrial companies in the S&P 500 fell 1.9% for the sharpest loss among the 11 sectors that make up the index. Aerospace giant Boeing lost 12.52 dollars, or 3.5%, to 349.69 dollars.
Stocks of smaller companies, which tend to do more of their business in the United States and may not feel as much pain from a global trade war, held up better than the rest of the market.
The Russell 2000 index of small-cap stocks fell 5.06, or 0.3%, to 1,507.39.
Bond prices rose as demand jumped for safer investments, which pushed yields lower. The yield on the 10-year Treasury note sank to 2.81% from 2.86% late Wednesday.
Stocks were higher earlier in the day after Federal Reserve chairman Jerome Powell testified before Congress and appeared to calm one of the market's main worries: that the Fed may get more aggressive about raising interest rates to beat down inflation amid the strengthening job market and economy.
Powell told the Senate Finance Committee that he did not see inflation in workers' wages "at a point of acceleration".
He also said: "I would expect that some continued strengthening in the labour market can take place without causing inflation."
Earlier in the week, Powell's testimony helped send Treasury yields jumping and stocks tumbling when he said that he was feeling more optimistic about the economy.
Some traders took that as a signal that the Fed may raise rates more quickly than the market expected.
Worries about potentially higher rates and inflation have reintroduced markets to volatility following their unusually calm run in 2017 and early this year.
The concerns at one point helped knock the S&P 500 down 10% from its record high, set in late January.
Patterson Companies fell to the biggest loss in the S&P 500 after it reported weaker earnings for the latest quarter than analysts expected and said that its chief financial officer was leaving.
Shares of the company, which sells dental and animal health products, dropped 7.47 dollars, or 23.7%, to 24.11 dollars.