Stocks fell dramatically on Tuesday after President TrumpDonald TrumpOhio Republican who voted to impeach Trump says he won't seek reelection Youngkin breaks with Trump on whether Democrats will cheat in the Virginia governor's race Trump endorses challenger in Michigan AG race MORE declared himself a “Tariff Man,” stressing he will not hesitate to raise tariffs on China if it does not agree to fundamentally change its trade practices.
The Dow Jones Industrial Average closed down nearly 800 points and the S&P 500 dropped more than 3 percent on the day, a sharply negative turn one day after markets were jolted by news that Trump reached a trade cease-fire with Chinese President Xi Jinping.
“Investors are spooked by President’s Trump handling of the trade war with China,” Mark Zandi, chief economist at Moody's Analytics, wrote in an email. “Despite the arrangement Trump and Xi agreed to last week in Argentina, they are nervous that the negotiations will go off the rails and the trade war will escalate.”
Zandi cited higher interest rates, lower corporate earnings growth and too-high valuations as other factors driving Wall Street fears.
“It is hard to see the bull market resuming as long as the president continues to pursue his trade war,” he added.
In a Tuesday morning tweet, Trump raised the possibility that the 90-day trade truce he brokered last weekend with Xi could be extended if the two nations are making progress toward a broader deal. That agreement froze U.S. tariffs while the two countries negotiate.
But investors appeared to pay greater attention to Trump's threat, which suggests he will proceed with plans to raise tariffs on $250 billion in Chinese goods from 10 percent to 25 percent if talks fail.
“President Xi and I want this deal to happen, and it probably will. But if not remember, I am a Tariff Man,” Trump said in a series of tweets.
“When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so,” he continued. “It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN.”
Tuesday's developments signaled that the U.S.-China trade truce rests on shaky ground and underscored the uncertainty surrounding the agreement, which was reached at last weekend's Group of 20 (G-20) summit.
Trump did open the door to giving China more time to reduce trade barriers and address other irritants if they make good-faith efforts, such as purchasing more U.S. goods.
“The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina,” he tweeted. “China is supposed to start buying Agricultural product and more immediately.”
But Trump's threats on Tuesday contrasted sharply with his tone after brokering the agreement with Xi over dinner on the sidelines of the G-20.
“It’s an incredible deal,” Trump told reporters aboard Air Force One while returning from the summit. “If it happens, it goes down as one of the largest deals ever made.”
In addition to Trump’s tweets, White House officials sent conflicting signals on Monday about whether China agreed to cut tariffs on imported automobiles as the president claimed the day after the summit.
National Economic Council Director Larry Kudlow said Beijing did agree to reduce auto tariffs but added that no “specific agreement” on tariff levels or timing had been reached. White House trade adviser Peter Navarro earlier did not confirm if there was any such deal in place.
Trump tweeted Sunday that China “agreed to reduce and remove tariffs on cars coming into China from the U.S,” in what would be a major shift from its 40 percent tariff rate.
Chinese officials did not confirm an auto tariff deal, nor did they mention a 90-day cutoff for negotiations, a sign the two countries might not be on the same page about what was agreed to at the summit.
Kudlow said the U.S. expects China to take “immediate” action to address fundamental concerns, such as forced technology transfers, alleged intellectual property theft and cyber hacking in order to pave the way toward a broader deal.
But on Tuesday, Kudlow spoke in cautious tones about what the Chinese actually promised to do.
“I have no assurances” about whether China will act by the 90-day deadline, Kudlow said at a conference sponsored by The Wall Street Journal.
Kudlow noted that China has made promises in the past about enacting sweeping trade reforms, only to back out of fulfilling its pledges. He was encouraged, however, by Xi's direct involvement in the talks.
“In my judgment we've come further, and the table of contents is larger, than what we've seen before,” he said.
China showed some signs on Tuesday they are willing to address U.S. complaints, announcing new penalties for companies that steal intellectual property. Those companies could face restrictions on access to loans and funding from the Chinese government, according to Bloomberg.
But it remains unclear how, or when, they plan to follow through on the other issues.
Trump has tapped U.S. Trade Representative Robert LighthizerBob LighthizerBiden moves to undo Trump trade legacy with EU deal Whiskey, workers and friends caught in the trade dispute crossfire GOP senator warns quick vote on new NAFTA would be 'huge mistake' MORE, a vocal China hawk, to lead the negotiations, supplanting Treasury Secretary Steven MnuchinSteven MnuchinMenendez, Rubio ask Yellen to probe meatpacker JBS The Hill's Morning Report - Presented by Goldman Sachs - Biden rallies Senate Dems behind mammoth spending plan Mnuchin dodges CNBC questions on whether Trump lying over election MORE, a free-trade advocate who had overseen the U.S.-China economic relationship.
The president tweeted that Lighthizer “will be working closely” with Mnuchin, Kudlow, Navarro and Commerce Secretary Wilbur RossWilbur Louis RossHouse panel, Commerce Department reach agreement on census documents China sanctions Wilbur Ross, others after US warns of doing business in Hong Kong DOJ won't prosecute Wilbur Ross after watchdog found he gave false testimony MORE.
Lighthizer’s appointment was seen as a sign that Trump is looking to drive a hard bargain with China, which he has long accused of “ripping off” the U.S. by violating global trade rules and undermining American industries.
Sylvan Lane contributed.