Stocks plunge as U.S. proposes tariffs on Chinese imports

Last Updated Mar 22, 2018 4:12 PM EDT

U.S. stocks fell sharply on Thursday after President Donald Trump announced new tariffs on Chinese goods.  

Mr. Trump proposed an estimated $50 billion in tariffs on China, a move experts fear could spark retaliatory trade measures by Beijing. Investors have worried about rising trade tensions after the administration announced tariffs on imported steel and aluminum.

The Dow fell more than 724 points, or 2.9 percent, to close at 23,958. It was the biggest one-day drop for the blue-chip index since Feb. 8, when Dow plummeted more than 1,000 points amid rising investor concern about inflation. The S&P 500 and Nasdaq index slid 2.5 percent and 2.4 percent, respectively. 

Industrial and technology companies slumped. Boeing (BA) fell 5 percent to close at 319.61 and Caterpillar (CAT) lost 5.7 percent, closing at 146.90.

Chinese companies were among the biggest laggards.  E-commerce firm Baozun (BZUN) fell 10 percent, while social network firm Weibo (WB) slid 7 percent. Internet platform provider Baidu (BIDU) dropped more than 6 percent. 

In a conference call with reporters to discuss the tariffs, White House trade adviser Peter Navarro said they are aimed at what he called "discriminatory" practices by China, including theft of intellectual property belonging to U.S. companies.

Deputy director of the National Economic Council Everett Eissenstat, who was also on the call, said that that the Office of the U.S. Trade Representative will publish a "long list" of proposed Chinese imports within 15 days. 

Although many experts think a full-blown trade war is unlikely, they're also not ruling it out. 

"We think that China's response to the U.S. continuing to take a tougher line on trade might well involve a range of arbitrary non-tariff measures designed to put pressure directly on U.S. firms. These might include implementing much stricter regulatory and compliance checks, or directly instructing Chinese firms to cut orders from the US," analysts at Capital Economics said in a note to clients. "This would directly affect some of the largest firms in the S&P 500, who either produce their goods in, or sell a significant proportion of them to, China."

"It's hard to find good precedent--we don't know for sure what the retaliation will be, if it escalates into a full trade war. China is speaking aggressively about how they are going to protect their industries," Andrew Challenger, Vice President of Challenger Gray & Christmas told CBS MoneyWatch. "Certainly the entire business community is on high alert--there is no scenario where a trade war is good for U.S. businesses." 

Fears of a trade war aren't the only factor weighing on stocks. Investors are also worried that the Federal Reserve may have to hike interest rates faster than expected if U.S. economic growth continues to firm. The central bank on Wednesday raised rates a quarter point and forecast that unemployment could fall below 4 percent by year-end.

"In less than 24 hours, we learned the Fed upgraded their economic projections -- sending the message that higher rates are coming – and that tariffs on imports aren't just talk but are a reality," said Greg McBride, chief financial analyst with Bankrate.com. "Investors are not warm to either of these outcomes as low interest rates and low inflation have been underpinnings of the 9-year bull market." 

Facebook (FB) shares, which had seen a brief reprieve on Wednesday, were again under pressure in the wake of the Cambridge Analytica data scandal.  Shares fell 4.50 or 2.66 percent to 164.89. CEO Mark Zuckerberg spoke about the incident Wednesday night, saying in a statement: "We have a responsibility to protect your data, and if we can't then we don't deserve to serve you. I've been working to understand exactly what happened and how to make sure this doesn't happen again."

The company is under increasing scrutiny from the government, as some lawmakers on Capitol Hill are calling for Facebook's management to testify about the incident. 

--The Associated Press contributed reporting