Dow falls more than 400 points after Trump's latest tariff threat

Stocks fell sharply Tuesday morning as Wall Street braced for President TrumpDonald John TrumpButtigieg surges ahead of Iowa caucuses Biden leads among Latino Democrats in Texas, California Kavanaugh hailed by conservative gathering in first public speech since confirmation MORE to impose higher tariffs on Chinese imports after a breakdown in trade negotiations with Beijing.

The Dow Jones Industrial Average closed with a loss 473 points by noon, a 1.8-percent drop, after briefly falling below 26,000 points. The S&P 500 index closed down 1.7 percent, while the Nasdaq composite sank by 2 percent.

The sell-off started during the first hours of trading, following an announcement Monday evening by Treasury Secretary Steven MnuchinSteven Terner MnuchinOn The Money: Trump appeals to Supreme Court to keep tax returns from NY prosecutors | Pelosi says deal on new NAFTA 'imminent' | Mnuchin downplays shutdown threat | Trump hits Fed after Walmart boasts strong earnings Lawmakers aim for agreement on top-line spending by next week Mnuchin: White House has no intention for a shutdown MORE and U.S. Trade Representative Robert LighthizerRobert (Bob) Emmet LighthizerPelosi sounds hopeful on new NAFTA deal despite tensions with White House On The Money: Economy adds 164K jobs in July | Trump signs two-year budget deal, but border showdown looms | US, EU strike deal on beef exports Chinese, US negotiators fine-tuning details of trade agreement: report MORE that Trump would raise tariffs on $200 billion worth of Chinese goods, from 10 percent to 25 percent, on Friday.

Trump announced his intent to raise tariffs on Chinese imports in a pair of Sunday tweets, spurring a steep sell-off in global financial markets Monday morning. But while Asian markets took heavy losses on the news, the Dow recovered almost all of a 470-point drop by the end of Monday trading.

An increase in U.S. tariffs on Chinese goods would be a major setback to trade talks between Washington and Beijing at a time when both sides appeared to be closing in on a deal.

Trump’s threat Sunday to raise tariffs and impose new taxes on more than $300 billion in imports was a surprising turn in negotiations that the president previously said would yield a deal “very soon.”

Several media outlets reported Monday that talks with China hit a roadblock after Beijing refused to agree to measures to halt intellectual property transfers that would require a change to Chinese law.

"We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China," Lighthizer said Monday, according to Bloomberg News. He added there were still significant issues to be hammered out in talks.

Chinese Vice Premier Liu He, Beijing's lead on trade negotiations, was scheduled to visit Washington on Thursday, a day before the tariff increase would go into effect.

Trump imposed a 10 percent tariff on $200 billion in Chinese imports last year and delayed the scheduled increase to 25 percent in January as negotiations proceeded. The president has also imposed a 25 percent tariff on $50 billion in Chinese goods.

If Trump follows through with his threat to impose tariffs on an additional $300 billion in Chinese imports, it would likely subject all goods from the country to import taxes.

Updated at 4:35 p.m.