Stocks drop after China slaps more tariffs on U.S. products

U.S. stocks dropped on Monday after a series of escalations in the U.S.-China trade war. The Dow lost 545 points, or 2.1%, in the first hour of trading. The S&P 500 lost 2.2% while the tech-heavy Nasdaq composite lost 2.8%.

China announced Monday it would impose tariffs on $60 billion worth of U.S. goods starting June 1. The move is a response to the U.S. on Friday increasing its import tariffs on $200 billion of Chinese goods to 25%, up from 10%. U.S. officials later said they were preparing to expand those tariffs to cover another $300 billion of goods, covering most all American imports from China.

Tech and machinery stocks were hardest hit Monday. Apple had its biggest drop of the year, falling 5% to $187.44. Seagate lost 6.2%, to $44.44 a share. Caterpillar, the heavy-machinery manufacturer, lost 4%, dropping to $125.93. Hon Hai Precision Industry Co., better known as Foxconn, lost 6.6%, falling to $5.06.

“The core underlying fear in the eyes of tech investors is around what this move as well as a retaliation move from the Chinese can do to the tech food chain,” Dan Ives, managing director of equity research at Wedbush Securities, wrote in a note Monday. Easy trade with China is crucial to the supply chains of tech companies as well as their consumer base. Apple is expected to sell about 20 percent of the iPhones it manufactures in the next year in China, Ives said.

Other Wall Street analysts warned that the tariffs could ding U.S. GDP growth while they push up inflation for numerous household goods. “[T]he costs of US tariffs have fallen entirely on U.S. businesses and households, with no clear reduction in the prices charged by Chinese exporters,” Jan Hatzius, Goldman Sachs’ chief economist, wrote Saturday, before China’s announcement. He added that the tariffs have also encouraged U.S. producers to raise their prices on products competing with Chinese goods.

Global stock markets dropped earlier in the day. The CAC 40 in Paris dropped 0.5% to 5,298 in midday trading while Germany’s DAX gave up 0.7% to 11,970. The FTSE 100 in Britain edged 0.1% lower to 7,194.