Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
US equity futures fell sharply Sunday night following the latest escalation of the trade war between the United States and China by President Donald Trump.
The futures on the Dow Jones Industrial Average Index were traded down by 311 points, indicating a drop of 256 points to Monday's opening. The futures on the S & P 500 and Nasdaq 100 indices showed declines of about 1% for both indices.
Trump tweeted Friday after the market closed that the US would increase tariffs on Chinese goods worth $ 250 billion from 25% to 30%. The tariffs on the $ 300 billion of Chinese products will also increase from 10% to 15%, he said. Property taxes worth $ 250 billion are expected to come into effect on October 1, while duties on the $ 300 billion will come into effect in two stages on December 1 and 15.
"Unfortunately, previous administrations have allowed China to take a long time ahead of fair and balanced trade to the point of becoming a heavy burden to the US taxpayer," Trump said in his tweets. "As president, I can not allow this to happen anymore!"
Trump then said at the G-7 summit in Biarritz, France, that he regretted not raising tariffs on China, pointing out that he had "doubts about everything". The president added that he could declare the trade war of national emergency.
Trump's comments and tweets took place after China unveiled on Friday new tariffs on $ 75 billion worth of US products, including automobiles. Trump also ordered Friday that US companies are relocating their Chinese operations, causing the collapse of US stocks.
Major indices all lost more than 2% on Friday as the Dow Jones Industrial Average lost 623.34 points. These declines erased the weekly gains that averages had accumulated until Thursday's close. After Friday's session, the Dow ended down 1% for the week, while the S & P 500 and Nasdaq Composite closed the week down 1.4% and 1.8%, respectively. Last week also marked the fourth consecutive weekly index defeat, the longest since May.
China and the United States have been engaged in a trade war since last year. The economic conflict has eased expectations for economic growth and corporate earnings growth, as investors and businesses weigh the impact on the global economy. The United States and China are the largest economies in the world.
"The ongoing trade war is reshaping global supply chains with casualties," said Julian Emanuel, chief equity and derivatives strategist at BTIG, in a note. "While persistent headwinds intersect with traditional seasonal sweetness, we can expect the recent volatility to continue in the near term, as markets await policy change. ".
The trade war is taking place in a context of slowing economic growth. The German manufacturing sector shrank and the Chinese economy recorded the slowest growth in nearly three decades in the second quarter.
The US bond market has also recently triggered a recessionary signal. The 10-year Treasury yield fell below its 2-year equivalent. This phenomenon is known as the yield curve inversion. Experts fear it because it has historically preceded periods of recession.
This economic slowdown has led central banks to ease monetary conditions, including the Federal Reserve.
Fed Chairman Jerome Powell said Friday that the central bank would "do the right thing" to support the current US economic expansion, which is the longest in history. However, Powell did not make it clear that another rate cut was imminent in September.
"The stock problem is not a restrictive monetary policy, but Trump's destructive trade policy," said Sunday Adam Crisafulli, executive director of J.P. Morgan. "Rates are already very low and the low yields associated with inverted curves are counterproductive for equities – as a result, central banks are doing everything they can right now."
Last month, the Fed lowered its rates by 25 basis points. Market expectations of a September rate cut are also 100%, according to the CME Group's FedWatch tool.
Michael Bloom and Chris Hayes of CNBC contributed to this report.
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