Shares slide amid escalating U.S.-China trade tensions

Last Updated Jul 11, 2018 9:57 AM EDT

Shares dropped sharply Wednesday after Beijing hit back at U.S. plans for tariffs on $200 billion more Chinese exports, with tensions rising over the trade war between the world's two largest economies.

U.S. opened lower after a stretch of gains. The Dow Jones Industrial Average fell 160 points at the open, or a decline of 0.6 percent, and the S&P 500 slipped 17 points, or 0.6 percent. 

The U.S. Trade Representative said Washington is preparing to impose 10 percent tariffs on another $200 billion in Chinese imports, including 6,031 product lines ranging from burglar alarms to electric lamps and fish sticks. The office will take public comments and hold hearings on the plan before reaching a decision after Aug. 31. 

The escalating trade concerns "will now become a continued headwind and may override the positive input of corporate earnings season," wrote B. Riley FBR analyst Benjamin Salisbury in a Wednesday research note. 

China's Commerce Ministry called the new wave of U.S. tariffs "totally unacceptable" and vowed to protect its core interests. The ministry did not offer more details, but Beijing had earlier threatened "comprehensive measures" if more tariffs were imposed. The moves followed an initial raft of 25 percent tariffs announced Friday by the U.S. on $34 billion in Chinese exports, which was reciprocated by China.

"Given the magnitude and breadth of the tariff list, the impact is expected to ripple through supply chains and cause collateral damage on regional economies," Zhu Huani of Mizuho Bank said in a commentary. However, she noted that the public consultation period allows time for more negotiations.

The U.S. economy is in what many would consider 'goldilocks' mode--with unemployment at lows not seen in nearly two decades and strong GDP growth. The Federal Reserve is in a tightening cycle for the first time in a decade, reflecting the relative strength of the economy. Many market watchers are concerned the trade war will derail the expansion.

"With no early end appearing to be in sight for the escalating 'tit-for-tat' world trade frictions and rising trade protectionism, global trade wars have become one of the key downside risks to world growth and trade in the second half of 2018 and for 2019," Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit said in a note. 

In Europe, France's CAC 40 lost 1.2 percent to 5,368 and the FTSE 100 index of British shares dropped 1.2 percent to 7,600. Germany's DAX sank 1.3 percent to 12,440. 

In Asia, Japan's benchmark Nikkei 225 fell 1.2 percent to 21,932.21 and South Korea's Kospi lost 0.6 percent to finish at 2,280.62. Hong Kong's Hang Seng shed 1.3 percent to 28,311.69. The Shanghai Composite index tumbled 1.8 percent to 2,777.77.