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Stocks fall as China’s response to US tariffs stokes economic anxiety

Trucks lined up at the Port of Oakland on Monday. US tariff increases will apply to Chinese goods shipped since Friday.Justin Sullivan/Getty Images/Getty Images

NEW YORK — Investors are dealing with a painful new reality: The trade war between the United States and China could last indefinitely.

The anxiety caused by that realization rippled through the stock markets Monday. The S&P 500 tumbled 2.4 percent after China said it would increase tariffs on nearly $60 billion worth of American-made goods in response to a similar move last week by the Trump administration.

The S&P’s drop was the biggest in four months. The Dow Jones industrial average fell 617 points, or 2.4 percent, and the technology-heavy Nasdaq plunged 270 points, or 3.4 percent, its biggest drop of the year, reflecting worries about potential damage from the escalating trade war.


‘‘We appear to be in a slow-motion train wreck, with both sides sticking to their positions,’’ said William Reinsch, a trade analyst at the Center for Strategic and International Studies and a former US trade official. ‘‘As is often the case, however, the losers will not be the negotiators or presidents, but the people.’’

President Trump, meanwhile, began the process of expanding US tariffs to cover all $540 billion in Chinese imports — a potentially seismic jolt to the global economy that is expected to raise prices for everyday products such as cellphones, sunglasses, cameras, and televisions.

‘‘There will be price hikes at Target, Costco, Home Depot, and Walmart,’’ said Nelson Dong, a partner at Dorsey & Whitney in Seattle. ‘‘The importers are going to pass on some or all of the tariff to the consumer, and that will become much more readily apparent and harder to mask.’’

With hopes fading for an early resolution of the yearlong US-China trade dispute, the president said he would meet Chinese President Xi Jinping at the G20 summit in Osaka, Japan, June 28-29. Treasury Secretary Steven Mnuchin told CNBC the two sides remained in ‘‘ongoing’’ negotiations.


‘‘I love the position we’re in,’’ the president told reporters.

The latest stock losses ended a recent calm that had settled over Wall Street. For months, investors assumed that the trade war, a major hazard for the global economy, would end soon.

Just weeks ago, the S&P 500 reached a record high.

For now, stock investors continue to sit on sizable gains. The S&P 500 remains up more than 12 percent in 2019. But the sell-off also shows Wall Street is factoring in the prospect the trade fight will drag on, even as it monitors the comments from officials in Beijing and Washington.

The stocks of companies with significant exposure to China have fared especially badly in the past week.

On Monday, Apple, which counts China as a major market for the sale of its iPhones and other devices and leans heavily on Chinese suppliers to produce them, fell nearly 6 percent. Boeing, one of the largest exporters in the United States, dropped almost 5 percent. Wynn Resorts, which is heavily reliant on casino operations in Macau that cater to gamblers from mainland China, fell about 6 percent.

Shares in trade-sensitive sectors such as agriculture, semiconductors, and industrials were hit particularly hard. Bonds and commodities, too, flashed warnings of a slowdown.

As stocks have wobbled, some analysts have argued that a decline was long overdue for a market that soared in the first four months of the year.

Beijing’s move came after the United States raised duties Friday on $200 billion worth of Chinese imports to 25 percent, up from 10 percent. On Twitter, Trump warned Xi that China ‘‘will be hurt very badly’’ if it doesn’t agree to a trade deal. He tweeted that Beijing ‘‘had a great deal, almost completed, & you backed out!’’


Still, the two countries have given themselves something of an escape hatch: The higher Chinese tariffs don’t kick in for 2½ weeks. Duties of 5 percent to 25 percent will take effect on June 1 on about 5,200 American products, including batteries, spinach, and coffee, China’s Finance Ministry said. The US increases apply to Chinese goods shipped since Friday, which will take about three weeks to arrive.

And both countries indicated more talks are likely. The top White House economic adviser, Larry Kudlow, said Sunday that China has invited US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to Beijing.

The president has insisted higher tariffs on Chinese goods won’t hurt US consumers. But Kudlow acknowledged consumers and businesses will bear some costs. ‘‘Both sides will pay,’’ he told Fox News.

The price of Treasury bonds rose Monday as investors sought the safety of government securities. Soybean and copper prices fell. Interest rates rose on corporate bonds, an indication investors were seeking higher premiums in response to increased economic risks.

On April 9, the International Monetary Fund cut its global growth forecast for 2019 to 3.3 percent, citing in part the US-China tensions.

In Europe Monday, the CAC 40 index in France and Dax in Germany fell more than 1 percent. In early trading in Asia Tuesday, the Shanghai Composite rose slightly.


This report includes material from The Washington Post, Associated Press, and Bloomberg.