Global stock indexes sank on Wednesday after the Trump administration released a list of 200 billion dollars in goods that could be hit with tariffs and China said it would retaliate.
The dollar spiked and big exporters plunged.
Companies that sell computer chips, oil, basic materials and heavy machinery dropped after the Trump administration proposed a 10% tax on a wide list of imports.
It is scheduled to make a decision on the potential tariffs after August 31.
China’s government said it will take “firm and forceful measures” if the new tariffs are enacted.
That response would likely include measures other than tariffs.
Mr Trump has threatened to put new taxes on almost everything the US imports from China.
Jack Ablin, chief investment officer for Cresset Wealth Advisors, said the tariffs can have big effects: A tariff on an import from one country can lead to broad price increases for similar items, and rising taxes and costs might cause companies to change their supply lines in less efficient ways.
“When you start adding all of that together, you end up with typically higher inflation and low productivity,” he said.
“Higher inflation tends to rob consumers of their income and lower productivity tends to rob companies of their profits.”
A four-day winning streak for the S&P 500 ended as the benchmark index lost 19.82 points, or 0.7%, to 2774.02.
The Dow Jones Industrial Average dropped 219.21 points, or 0.9%, to 24700.75.
The Nasdaq composite fell 42.59 points, or 0.5%, to 7716.61.
The Russell 2000, an index of smaller and more US-focused companies, gave up 11.96 points, or 0.7%, to 1683.66.
The S&P 500 had closed at a five-month high on Tuesday.
The new list of tariff targets from the US Trade Representative includes vacuum cleaners, furniture and car and bicycle parts, but US-branded smartphones and laptops were excluded.
Still, chipmakers, which make large portions of their sales in China, slumped.
Nvidia fell 2.3% to 247.53 dollars and Micron Technology lost 2.8% to 54.18 dollars.
Construction equipment maker Caterpillar lost 3.2% to 136.76 dollars and farm equipment maker Deere lost 2.2% to 141.42 dollars.
The ICE US dollar index jumped 0.6%, a large move.
The dollar rose sharply against the Japanese currency, increasing to 112.04 yen from 111.28 yen. The euro fell to 1.1674 dollars from 1.1745 dollars.
The stronger dollar hurts exporters because it makes US goods and commodities more expensive in other markets.
Crude oil prices tumbled partly because of the rising dollar and partly because Libya said it will start exporting oil again, a move that will increase supplies.
Benchmark US crude fell 5% to 70.38 dollars a barrel in New York.
Brent crude, used to price international oils, plunged 6.9% to 73.40 dollars a barrel in London.
On Friday the US and China put 25% taxes on 34 billion dollars in imports.
China imported only 130 billion dollars in goods from the US last year, but it could retaliate against the US through other means including regulatory moves and investigations of US companies.
The trade dispute stems from Washington’s complaint that Beijing steals or pressures companies to hand over technology and its concerns that plans for state-led development of Chinese companies in robotics and other fields might erode American industrial leadership.
Indexes in Europe and Asia took steeper losses as investors worried the worsening trade dispute will hamper the growth of the global economy.
France’s CAC 40 and the Dax in Germany both lost 1.5%. Britain’s FTSE 100 index dropped 1.3%.
Japan’s benchmark Nikkei 225 fell 1.2% and the South Korean Kospi lost 0.6% while Hong Kong’s Hang Seng shed 1.3%.