Stocks stumble as Trump’s remarks on China reignite trade war fears

US stocks dropped lower Friday after President Donald Trump threatened to hike tariffs on imports from China, reigniting fears of a trade war that rocked global markets earlier this year.

The Dow was down 600 points, or 1.3%. The broader S&P 500 fell 1.9% and the tech-heavy Nasdaq Composite fell 2.6%.

The Dow was set for its worst day since June. The S&P 500 and Nasdaq were on track for their worst day since April.

Trump said in a social media post he is considering a “massive increase” in tariffs on imports from China, adding “There is no way that China should be allowed to hold the World ‘captive’” over rare earth exports.

His latest threat stems from accusations that China is imposing export controls on rare earths, slow-walking previous agreements to free them up for US businesses. Because of that, Trump said he no longer sees a need to meet with President Xi Jinping later this month at the Asia-Pacific Economic Cooperation summit in South Korea.

US stocks had been hovering near record highs. Wall Street in recent months has tried to look past concerns about tariffs, instead focusing on better-than-expected corporate earnings.

The president’s post on Truth Social jolted markets, sending Wall Street’s fear gauge, the CBOE Volatility Index, soaring by 33%.

AI and chip stocks that are sensitive to developments in US-China trade relations dropped lower. Nvidia (NVDA) and Advanced Micro Devices (AMD) fell 2.5% and 6%, respectively.

Wall Street in recent weeks has also been worried about valuations of AI and tech stocks, leaving them more vulnerable to a surprise.

“When you have a shock like today with President Trump, they are going to get hit the most because they’re the most at risk to the economic outlook worsening or corporate earnings retreating due to a potential slowdown,” said José Torres, senior economist at Interactive Brokers.

Meanwhile, US-based rare earth mining and processing companies jumped higher. USA Rare Earth (USAR) and MP Materials (MP) soared 14.5% and 12.6%, respectively.

Bonds rally, oil prices drop

US Treasuries rallied as investors rushed into safer assets amid market volatility and concerns that a reignited trade war could hit economic growth.

10-year and 30-year Treasury yields fell as investors scooped up bonds.

Gold and silver, which are considered safe havens amid turmoil, initially jumped as much as 1.5% and 2.2%, respectively, before paring gains.

“Trump is sparking risk-off sentiments in markets after declaring the potential for massive tariff hikes on China,” Torres said. “Investors are clamoring for safe haven holdings as a heavy increase in levies could weigh on the earnings picture and the economic outlook ahead.”

US oil prices slumped 4% and Brent crude dropped 3.6%. Oil prices had been trading lower earlier in part due to ceasefire developments between Israel and Hamas.

Robert Yawger, commodity specialist at Mizuho Securities, said the flare up in tensions between Trump and Xi stoked concerns of a “demand destruction event,” where a trade war weighs on economic growth and demand for oil.

“It’s a mini mirror image of what happened in April,” Yawger said, referring to the slump in oil prices in the spring when investors were raising forecasts of a possible recession.

CNN’s Fear and Greed index dropped from “neutral” into “fear” for the first time since May.

CNN’s Elisabeth Buchwald and Matt Egan contributed reporting.