Shares fell sharply Thursday after U.S. President Donald Trump announced plans to impose tariffs on Chinese imports, adding more stress to stock markets already dealing with concerns about rising interest rates.
The Dow Jones Industrial Average, which has been walloped several times over the past seven weeks, fell more than 700 points or 2.9 per cent, for its biggest tumble since Feb. 8.
Boeing Co. and Caterpillar Inc. fell more than 5 per cent each, reflecting concerns that key U.S. exporters could suffer if China responds with tariffs of its own.
"We're prepared to pull back our growth forecasts for this year as a result of these actions, depending on how aggressively China responds, and the stock market has already delivered its own verdict," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.
Stocks retreated worldwide, with Canada's S&P/TSX composite index suffering its biggest drop since Sept. 2016, as investors wagered that Mr. Trump's latest off-the-cuff policy decision could reverberate globally.
The stock market turbulence continues a rough patch that began in late January, first amid worries that rising U.S. wages could lead to higher-than-expected interest rates, but more recently as investors recoil from the potential knock-on effects of the Trump administration's protectionist agenda.
Although the administration's latest tariff announcement, in retaliation for China's alleged violation of U.S. intellectual property, appears modest relative to the volume of trade between the two economies, observers warn that escalation will threaten global economic activity and corporate profits.
"The tariffs on Chinese imports outlined by President Donald Trump today won't have a huge impact on the economy even if implemented in full, and we suspect they will end up being watered down," Andrew Hunter, an economist at Capital Economics, said in a note.
"But as the market reaction today highlights, there is a clear risk that sentiment continues to deteriorate."
Ian de Verteuil, a strategist at CIBC World Markets who has been writing about the continuing negotiations over the North American free-trade agreement, warned in a note on Wednesday: "Of all of the trade actions on Trump's desk, the Section 301 against Chinese IP violations and forced technology transfer is the 'big one.' "
The Dow closed at 23,957.89, down 724.42 points or 2.9 per cent. The broader S&P 500 closed at 2,643.69, down 68.24 points or 2.5 per cent, putting the benchmark index under water this year. Stocks also fell elsewhere. Canada's S&P/TSX Composite Index closed at 15,399.93, down 275.35 points or 1.8 per cent. European stocks fell more than 1.5 per cent.
Some sectors appear particularly sensitive to escalating tariffs from both countries.
Mr. Hunter, drawing on data from the U.S. Census Bureau, noted that U.S. imports from China consisted largely of computers, appliances and apparel. This suggests that U.S. tariffs of 25 per cent on these imports could raise prices for companies and consumers, a prospect that Walmart Inc., Costco Wholesale Corp. and other U.S.-based companies warned of earlier this week.
China's share of U.S. exports in 2017 were heavily tilted toward U.S. agriculture, transport, electrical equipment, chemicals and machinery, suggesting that these areas could be hit if China retaliates.
Activity within the U.S. stock market reflected concern with some of these sectors.
Aerospace giant Boeing Co., whose shares fell earlier this month after Mr. Trump announced tariffs on imported steel and aluminum, fell 5.2 per cent on Thursday, bringing its total decline in March to 10 per cent. In 2017, the company delivered 22 per cent of its planes in 2017 to China, underscoring its vulnerability to Chinese retaliation.
Caterpillar Inc., which makes construction and mining machinery, fell 5.7 per cent, making it the biggest loser in the 30-stock Dow.
The declines occurred within a bright period for the global economy, and the U.S. economy more specifically, highlighting the fact that markets are sensitive to any change that might interrupt the upbeat conditions.
Some observers noted, however, that Mr. Trump's latest announcement could be little more than bluster. "Thursday's announcement will trigger a period of negotiation, and Chinese officials could offer some minor concessions that would allow Trump to claim victory," Mr. Hunter said.