Stocks lost ground on Thursday after comments by China’s Vice Premier about the US trade war fueled fears that the world’s two largest economies could spiral into a trade war.
The Dow Jones Industrial Average tumbled nearly 905 points, or 3.8%, as the S&P 500 and Nasdaq plunged more than 4%.
Financial stocks and technology stocks were particularly hard hit as investors fled from risky assets and into safer investments.
“We are in the midst of a very severe worldwide bond market selloff,” said Jason Ware, chief investment officer at Albion Financial Group.
US stocks are also likely to see renewed pressure heading into Friday’s US jobs report. The market has been volatile in recent weeks as investors try to figure out if the US is heading into a recession. Friday’s employment report will likely cement those fears.
“Friday’s jobs report will be volatile,” Ware said. “The market will need to digest the bad news about trade that came out of China to maintain trading relationships.”
On Thursday, Chinese Vice Premier Liu He said in a meeting with the World Bank president that Beijing will raise tariffs on 128 US products if the Trump administration doesn’t fully reverse course on tariffs, according to state media.
The statement doesn’t appear to be a negotiating tactic, but Xi Jinping told US Commerce Secretary Wilbur Ross in April that China would have “no choice but to respond with greater vigor” to US tariffs.
When Liu made those comments, the Dow had already tanked nearly 500 points, sending tremors through Wall Street.
China has been tough on new US tariffs, and Beijing said on Wednesday that Washington didn’t make sufficient progress on the trade dispute during an initial round of talks that took place in Beijing last week.
“China has decided to adopt countermeasures if the trade battle persists, something that was thought to be very unlikely months ago,” Tom Orlik, chief economist at data providerienStreet, wrote in a note to clients on Thursday.
The escalating trade war could also extend to chemicals, technology, robotics and other areas that require greater importation of parts and components from overseas.
Investors are also bracing for fresh talks between China and the US at the end of the month. Ross and US trade representative Robert Lighthizer are expected to meet in Washington on May 30 to try to jump-start negotiations.
The trade conflict has also been rattling the markets. The Dow dropped nearly 2,400 points at the start of April, and the S&P 500 tumbled more than 6%.
“China has been taking a ‘wait and see’ approach to the trade war with the US, which is understandable, given the impact tariffs have had on US companies and the economy,” analysts at TD Securities wrote in a note on Thursday.
President Donald Trump has retaliated against China’s imports by hitting $50 billion of Chinese products with tariffs. China has hit $3 billion of US goods with tariffs of its own.
The escalating US tariffs on Chinese goods spurred fresh retaliatory threats from the People’s Republic on Wednesday. China’s commerce ministry threatened to impose tariffs on $60 billion worth of US goods and raised the prospect of additional duties on $7 billion more.
“The Chinese regime is clearly vulnerable to rising US protectionism,” TD Securities analysts wrote.