Trade war fears are rattling Wall Street as President Trump prepares a crackdown on China.
The Dow dropped 724 points when the Dow closed on Thursday, underlining growing concerns among investors about looming tariffs on China.
"A global trade war, whether it's real or perceived, is what's weighing on the market," said Ian Winer, head of equities at Wedbush Securities. "There's this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people."
Trump is expected to announce up to $60 billion worth of tariffs on China on Thursday afternoon. It's not clear which products will be hit, but the action is aimed at curbing China's troubling theft of US intellectual property.
China wasted little time in threatening to retaliate against the United States, underlining the risk of a tit-for-tat escalation that hurts global trade.
Beijing warned on Thursday it will "certainly take all necessary measures to resolutely defend" itself. China didn't specify how it will respond, but US crops like soybeans are likely to be in the crosshairs.
Wall Street's biggest fear is a trade war, according to a recent survey of fund managers by Bank of America Merrill Lynch. The survey, released this week, found that for the first time since January 2017 the threat of a trade war topped inflation as the biggest risk to markets.
The biggest losers on the Dow on Thursday included stocks with significant exposure to China: Caterpillar, 3M and Boeing.
Michael Block, chief strategist at Rhino Trading Partners, said in a report that Trump's tariff plan "has markets and the world at large freaking out a little."
The trade crackdown is a big deal because the United States and China are the world's two biggest economies. A major slowdown in trade could darken the otherwise bright economic outlook.
China is a major buyer of US crops, and Americans purchase tons of Chinese-made products. China is also America's biggest creditor, owning more Treasuries than any other nation.
Some market analysts questioned the wisdom of broad tariffs to tackle the very real problem of intellectual property theft.
"Isn't there another way to deal with this that is more targeted?" Peter Boockvar, chief investment officer at The Bleakley Advisory Group, wrote in a report. "The American consumer again will be the pawn that pays for this."
The trade worries could prove overdone if tensions between the United States and China ease.
Initial concerns about Trump's tariffs on aluminum and steel relaxed after the administration softened its stance by offering exemptions for Canada and Mexico. The United States has also signaled that major allies like the European Union, South Korea and Australia may also escape the tariffs.