Big industrial and technology companies skidded Tuesday as the trade dispute between the USA and China threatened to come to a boil.
Trump insists that China has been unfairly benefiting from a trade imbalance with the USA for years. That's after China and the US both levied a 25 percent tariff on $50 billion worth of goods. Those tariffs were matched by China's threat to penalize on US exports, a move that drew the president's ire.
The move comes just three days after the president enacted an initial $50 billion in imports that would be taxed an additional 25 percent, which he said was punishment for the theft of intellectual property from USA companies, as well as the trade gap between the two countries.
Beijing matched that total with a tax on USA goods.
If the tariffs the two countries have threatened to slap on each other's exports take effect, their consumers would have to pay higher retail prices. "The United States can no longer tolerate losing our technology and intellectual property through unfair economic practices".
These penalties would take effect, the White House said, "if China refuses to change its practices" and proceeds with its plans for retaliatory tariffs. "Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong", Trump said in a statement.
The rhetoric weighed on Chinese stocks on Tuesday, with the Shanghai Composite Index plunging to a two-year low and the yuan coming under pressure.
The Dow Jones industrials are up 30 points, or 0.1 percent, to 24,730, after falling 287 points Tuesday.
Beijing could also seek to make life hard for big USA companies that rely on the Chinese market for a big chunk of their revenue.
European Union retaliates against Trump’s metal tariffs
EU countertariffs on a list of United States products would come into force on Friday, the European Commission said Wednesday. Mexico retaliated against the move two weeks ago while Canada said it would place tariffs on U-S exports from July the first.
"This practice of extreme pressure and blackmail deviates from the consensus reached by two parties through many negotiations, and it also disappointed the global community", said a forcefully worded statement from the Commerce Ministry.
Trump said his move followed China's decision to raise tariffs on $50 billion in USA goods, which came after the White House announced similar tariffs on Chinese goods on Friday.
"Let's hope that Americans wake up in time to understand this reality that they, not the Chinese, will be the ones hurt the most by their president's insistence that they should pay high prices for imports, including those that are used by many United States manufacturers", Veronique de Rugy, a senior research fellow at George Mason University's Mercatus Center, said Tuesday. He added he would identify an extra $200bn of goods - for a possible total of $450bn, or most Chinese imports - "if China increases its tariffs yet again".
Analysts say the direct impact of the tariffs may be limited, especially for the USA economy, which is in strong shape.
The United States has alleged that China is stealing US intellectual property, a charge denied by Beijing. In April the Commerce Department blocked ZTE from buying USA components for seven years, a move that amounted to a death sentence for the company.
Wall Street's three major indexes closed lower, though the S&P 500's 0.4 percent drop was much more measured than that of overseas markets such as China's.
Freeland said Canada's proposed tariffs on American-made goods were strategically chosen to have "minimal impact on Canadians". A punitive duty the Trump administration applied to lumber imports from Canada has raised the price of a new home by $9,000, according to the National Association of Home Builders.
Steel companies also took sharp losses.