Dow dives more than 500 points as U.S.-China trade fears flare

/ CBS/AP

U.S. and China to resume trade talks

Stocks sank sharply Tuesday as investors fretted that delicate trade talks between the U.S. and China could collapse. President Donald Trump on Sunday threatened over Twitter to jack up tariffs on $200 billion in Chinese goods from 10 percent to 25 percent, as well as impose new levies on more than $300 billion in products imported from China.

U.S. Trade Representative Robert Lighthizer said those tariffs on China will take effect on Friday, and he and Trade Secretary Steven Mnuchin accused China of "reneging" on commitments to change its trade policies. Trade talks between the two countries are set to resume on Thursday in Washington.

"President Trump's tweet on the prospect for 25 percent tariffs on the $200 [billion] of goods and the possibility of 25 percent tariffs on Chinese goods not yet subject to tariff reignited fears of trade escalation," UBS analysts said in a client note.

Trump threatens more tariffs on China ahead of crucial meetings

The Dow fell 540 points, or 2 percent, to 25,912, with the broader S&P 500 and technology-heavy Nasdaq composite also sliding more than 2 percent. Every sector fell, extending the markets losses into a second day, with tech companies and banks leading the decline. Tech and industrial companies, which import a range of components and other parts from China, would feel the biggest impact from raising tariffs on Chinese imports, according to UBS.

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Investors will likely have to deal with a volatile market amid uncertainty over whether the U.S. and China can reach agreement on trade.

"This is such a short period of time that it's hard to speculate whether this will cause something to get done quickly or whether it will drag on for months," said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute.

The tougher rhetoric from the U.S. on trade surprised investors who had been expecting that the world's biggest economies would come to some sort of agreement. The ongoing feud has raised costs on goods for consumers and companies. And while some market analysts still expect the countries to clinch a deal, others think Mr. Trump's aggressive rhetoric are unlikely to sway the Chinese.

"With the 2020 U.S. presidential election season beginning to spin in the media, an impatient U.S. president is turning to bullying to try to push trade talks to a conclusion," said Carl Weinberg, chief international economist with High Frequency Economics, in a research note. "We think this is a losing tactic with China. We do not think Beijing will submit to bullying by the U.S. president."

First published on May 7, 2019 / 2:03 PM

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