The selling on Wall Street was widespread and heavy, handing the benchmark S&P 500 index its biggest loss since January. The sell-off extended the market's slide into a second week.
The losses so far in May have now erased the market's gains from April.
The Dow dove 617.38 points, or 2.4 per cent, to 25,324.99. Earlier, it was down 719 points.
The broader S&P 500 index fell 69.53 points, or 2.4 per cent, to 2,811.87. The index is coming off its worst week since January, though it's still up sharply for the year.
The Nasdaq, which is heavily weighted with technology stocks, slid 269.92 points, or 3.4 per cent, to 7,647.02, its worst drop of the year.
China announced higher tariffs Monday on US$60 billion worth of American goods in retaliation for President Donald Trump's latest penalties on Chinese products.
Tariffs of five per cent to 25 per cent will take effect on June 1 on about 5,200 American products, including batteries, spinach and coffee, the Finance Ministry said.
The announcement followed a move by the U.S. on Friday to raise duties on US$200 billion of Chinese imports to 25 per cent, up from 10 per cent. American officials accused China of backtracking on commitments it made in earlier negotiations.
Apple and Boeing were the Dow's biggest decliners overnight. Both companies get a significant amount of revenue from China and stand to lose heavily if the trade war drags on. Boeing slid 4.9 per cent.
Technology companies, which do a lot of business with China, led the way lower. Chipmakers were among the biggest decliners.
Apple also took heavy losses, tumbling 5.8 per cent.
The world's two largest economies had seemed to be on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins. Hopes for a resolution had helped push the market to its best yearly start in decades.
Those hopes are now replaced by concerns that a full-blown trade war could crimp what is otherwise a mostly healthy economy.
"The larger issue with the tariffs isn't the specific amounts of tariffs at any given time, but the uncertainty that's surrounding these tariffs and the 'what's-next?' of an escalating trade war," said Willie Delwiche, investment strategist at Baird.
"That weighs on the global economy and could then weigh on the US economy."
Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. Many are still confident that both sides will eventually reach a deal.
"Since we see a trade accord being reached in the not-too-distant future, we don't expect the market to endure more than a short-lived spate of indigestion," said Sam Stovall, chief investment strategist at CFRA.
Technology stocks took the heaviest losses Monday. Chipmakers Microchip Technology dropped 6.3 per cent and Advanced Micro Devices lost 6.2 per cent.
Some of the biggest chipmakers in the US lean heavily on China for their sales, making them particularly vulnerable to the worsening tensions between the two countries.
With China now retaliating against the Trump administration's tariffs, it has become more likely the chip sector will be caught in the crossfire and take a hit to their profits.
- NZ Herald, AP
