The Dow Jones Industrial Average closed down more than 700 points, with investors fearing that trade tensions will spike between the US and China after President Donald Trump unveiled new tariffs against Beijing.
Industrial and technology companies, which depend heavily on foreign trade, took some of the worst losses with Boeing, Caterpillar and Microsoft all falling sharply.
The Dow sank 724 points, or 2.9 per cent, to 23,957. The Nasdaq lost 178 points, or 2.4 percent, to 7,166. The S&P 500 index dropped 68 points, or 2.5 per cent, to 2,643, erasing its gain for the year. It is the fifth-worst daily point drop ever for the Dow and the worst since the beginning of February.
Earlier on Thursday, Mr Trump unveiled a plan to impose up to $60bn in new tariffs on Chinese goods, as well as limiting the country's investment in the US as payback for what his administration alleges is years of intellectual property theft.
The president’s order - which report from the White House had previously suggested would be nearer $50bn - is likely to trigger retaliation by Beijing and could further stoke fears of a global trade war. Just before signing the trade action, Mr Trump said it was “the first of many” as he looks to correct what has repeatedly called “unfair” trade deals with nations around the world.
“Markets are saying that these tariffs are going to cut into the global growth story that looked pretty strong just a few weeks ago. The prospect of more tariffs is making markets very unsettled and you're going to see choppy trading until we see the effect they are having on earnings,” Jamie Cox, a managing partner for Harris Financial Group told Reuters.
Under the terms of the memorandum Mr Trump signed, he will target the Chinese imports only after a consultation period, thereby giving industry lobbyists and members of Congress a chance to water down a list of proposed 1,300 products that could be targeted.
The consultation period will also give China time to respond, reducing the risk of immediate revenge from Beijing. The Chinese government has vowed to take “all necessary measures” to defend the country’s interests if Mr Trump attacks it for allegedly stealing American technology or pressuring US companies to hand it over.
“China will not sit idly to see its legitimate rights damaged and must take all necessary measures to resolutely defend its legitimate rights,” the Commerce Ministry in Beijing said in a statement on its website.
Mr Trump struck a conciliatory tone when he first began speaking at the White House’s signing ceremony, calling China “a friend” and saying he had “tremendous respect” for China's President Xi Jinping.
Peter Donisanu, an investment strategy analyst for the Wells Fargo Investment Institute, told the Associated Press that the risk of a damaging trade war is still low because the Trump administration is targeting specific goods that aren't central to China's economy. That could change if it puts tariffs on products like electronics or appliances imported from China.
“If the Trump administration really wanted to hurt China and start a trade war, then they would go after those larger sectors,” he said.
Reuters and Associated Press contributed to this report.
