President Donald Trump on Monday threatened an all-out trade war with China by announcing the possibility of tariffs on an additional $200 billion worth of Chinese goods.
The Dow Jones industrial average fell more than 400 points, or 1.7% Tuesday. The S&P 500 was off more than 1%.
Traders are moving into the safety of the US dollar and US Treasurys.
US stocks stumbled early Tuesday, the morning after President Donald Trump threatened an all-out trade war with China. The Dow Jones industrial average fell 1.7%, down more than 400 points, and S&P 500 lost 1.1% after heavy overnight selling dropped China's Shanghai Composite (-3.78%) to its lowest level in two years.
"Therefore, today, I directed the United States trade representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent," Trump said on Monday. "After the legal process is complete, these tariffs will go into effect if China refuses to change its practices and also if it insists on going forward with the new tariffs that it has recently announced."
Monday's announcement came days after Beijing announced tariffs on $50 billion worth of US goods in a tit-for-tat response to those finalized by Trump earlier Friday. Neither of those tariffs have gone into effect yet.
"Global sentiment is on the back foot amid signs that neither side will back down, potentially taking global commerce a step closer to an unwelcome trade war," Mike van Dulken, the head of research at Accendo Markets, wrote in a note Tuesday morning.
Tuesday's stock market slide has sparked a risk-off trade with money moving into the safety of the US dollar and US Treasurys. The US dollar index was higher by 0.44% and at its best level in 11 months. The 10-year yield was down 4 basis points at 2.88%.
US economic data out Tuesday morning showed housing starts rose 5% month-over-month in May to 1.35 million (1.31 million expected), while building permits fell 4.6% month-over-month to 1.3 million (1.35 million expected).