Global markets sank Tuesday on fears that the United States and China may be veering toward an all-out trade war.
The Dow Jones industrial averaged dropped 400 points, or 1.6 percent in morning trading on worries that the tit-for-tat tariff threats between the United States and China may turn into an all-out economic brawl.
With the loss, the Dow has wiped out all its gains for the year. If it closes down, the blue-chip composite of 30 stocks would post its sixth straight daily loss — its longest sustained slide in 15 months.
The Standard and Poor's 500-stock index was down nearly 1 percent and the tech-heavy Nasdaq Composite lost 1.1 percent, its biggest drop in two months.
"Trump is playing a game of chicken, who will blink first," said Ivan Feinseth, chief investment officer at Tigress Financial Partners. "Trump is betting that China understands they have more to lose in the tariff war because we import more from them than they do from us. Like five times more."
The declines in the U.S. markets followed a global rout. Asian benchmarks were hit the hardest, with Shanghai closing down 3.78 percent, its biggest drop in two years, and Shenzhen down 5.31 percent. Hong Kong's Hang Seng Index finished down 2.76 percent. The Japanese Nikkei 225 lost 1.77 percent.
European markets were also slid on the worries of global trade disruption. The FTSE 100 in London was off 0.46 percent. The German DAX was hit particularly hard, down 1.26 percent. The Stoxx Europe 600 was down 0.71 percent and France's CAC 40 had slipped more than 1.1 percent.
[Europe and Asia markets slide as Trump threatens new tariffs on Chinese products]
Worries about a trade war between the U.S. and China has been brewing for most of the year as the two countries have traded threats.
On Monday President Trump threatened tariffs on nearly all of China's products shipped to the United States unless Beijing agrees to sweeping trade concessions.
"The trade relationship between the United States and China must be much more equitable," Trump said. "The United States will no longer be taken advantage of on trade by China and other countries in the world."
Trump said he had ordered his chief negotiator, U.S. Trade Representative Robert E. Lighthizer, to draw up a list of $200 billion in Chinese products that will be hit with tariffs of 10 percent if China refuses his demands to narrow the yawning U.S. trade deficit and change its industrial policies.
[Trump threatens to levy tariffs on nearly all of China's products shipped to the U.S.]
The president warned that he was prepared to hit China with an additional $200 billion in import taxes unless Beijing capitulates. None of the tariffs could take effect for 60 days.
In a statement published shortly after Monday's announcement, China's Ministry of Commerce called the move "blackmail."
"If the U.S. loses its senses and publishes a new list, China will be forced to take comprehensive measures that are both strong in quantity and gravity and will fight back," it read.
The U.S. imports about $505 billion a year in goods from China. If Trump carries through on all his trade threats, the result would be higher costs on virtually all the goods that the U.S. imports from China.
"I take the administration at their word that this is a negotiating tactic, and I understand that if things spiral out of control, tariffs can always be walked back at any time," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, in an email. "The idea that they will knowingly drive the economy into recession seems unlikely. But the short-term damage to the markets and the impact on the economy has me concerned."
Emily Rauhala in Beijing contributed to this report.
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