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 TrumpRussian sanctions will boomerang States, cities rethink tax incentives after Amazon HQ2 backlash A Presidents Day perspective on the nature of a free press 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 MnuchinGOP senators offering bill to cement business provision in Trump tax law On The Money: Deficit spikes 25 percent through January | Mnuchin declines to say why Trump pulled Treasury nominee who oversaw Roger Stone case | Lawmakers trade insults over Trump budget cuts Mnuchin defends Treasury regulations on GOP tax law MORE and U.S. Trade Representative Robert LighthizerRobert (Bob) Emmet LighthizerGOP senator warns quick vote on new NAFTA would be 'huge mistake' Pelosi casts doubt on USMCA deal in 2019 Pelosi sounds hopeful on new NAFTA deal despite tensions with White House MORE that Trump would raise tariffs on $200 billion worth of Chinese goods, from 10 percent to 25 percent, on Friday.

ADVERTISEMENT
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.