Dow falls 572 points as Donald Trump and China issue fresh tariff threats as trade war looms


Blame "Tariff Tantrum 2.0" for the latest stock market swoon.

U.S. stocks closed sharply lower Friday as Wall Street reacted to the latest escalation in the trade fight between the U.S. and China.

 

Investor jitters were elevated on the final trading day of the week after Beijing vowed to fight back against the Trump administration’s latest threats of yet more tariffs on Chinese imports, renewing investor fears that the brewing battle between the world’s two biggest economies could result in a full-fledged trade war.

"Escalation of the U.S.-China dispute has entered a new phase," David Fernandez of Barclays Bank in Singapore told clients in a report.

The Dow Jones industrial average had another rough day, tumbling as much as 767 points at its low before recouping some of its losses and closing down 572 points, or 2.3%, at 23,932.76. Leading the decline were airplane giant Boeing, which fell 3.1%, and heavy-equipment maker Caterpillar, which declined 3.5%. Both companies are at risk because of their higher international sales and exposure to China. 

For the week, the Dow was down 0.7%.

U.S.-China trade tensions stepped up another notch after President Trump late Thursday instructed the U.S. trade representative "to consider" slapping an extra $100 billion in tariffs on Chinese goods. China responded by indicating it wouldn’t back down, saying it would fight back “at any cost,” according to a statement from the Commerce Ministry.

The surprise move was a further escalation of the deepening dispute between the two economic powers, which just days earlier announced plans for $50 billion in import duties on each other’s goods. The earlier tariff threats roiled financial markets but stocks had rebounded Thursday on investor hopes that the parties would find a diplomatic solution.

Comments from Treasury Secretary Steve Mnuchin failed to calm investor fears. In an interview on CNBC, he reiterated that the "(U.S.) is not in a trade war" but wouldn't rule out that the current tit-for-tat between the two countries "is not the beginning of one."

Investors fear a trade war because it will restrict the flow of goods between the nations, which will not only hurt sales and corporate profits but also dent investor confidence.

Despite the short-term market turbulence, investment pros are still hopeful that a full-fledged trade war will not break out.

Our view remains that a negotiated solution is most likely, and so the tariffs ultimately won’t be implemented or will be much milder if they are,” said Shane Oliver, head of investment strategy at AMP Capital in Sydney. "However, negotiations could take months. In the meantime, there will be ongoing noise around the issue,” and financial markets will remain volatile."

But other investment pros are getting nervous and worry that the heated rhetoric could suggest that this is more than just negotiating tactics.

"The global trade war is moving from myth to reality," Peter Rosenstreich of Swissquote Bank, an online bank in Switzerland, told USA TODAY in an email.

In U.S. economic news, the government reported  that American employers added 103,000 jobs in March, below the 185,000 jobs analysts had forecast. Winter storms were cited as one reason for the slower hiring pace.

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