BEIJING/NEW YORK -- U.S. President Donald Trump said on Monday that he will meet Chinese President Xi Jinping at the Group of 20 leaders summit in June, on a day when Wall Street saw a major sell off on fears of a trade war escalation.
Earlier in the day, China's finance ministry said it will raise retaliatory duties on $60 billion in U.S. imports to as much as 25% from June 1, in response to Friday's tariff increase by Washington.
The Dow Industrial Average shed as much as 719 points during Monday's trading. It closed 617 points below last week's close, sinking to a three-month low of 25,324.
Speaking to reporters at the Oval Office, Trump said he had a "very good relationship" with Xi.
"Maybe something will happen. We are going to be meeting, as you know, at the G-20 in Japan," he said, referring to the June 28-29 summit in Osaka. "And that'll be, I think, probably a very fruitful meeting."
Perhaps with the huge market sell off in mind, the president toned down his threat to impose a new round of tariffs on the remaining $325 billion in Chinese goods exported to the U.S. "We have another $325 billion that we can do if we decide to do it," he said, adding that he has not made the decision yet.
The retaliatory tariff hikes announced by Beijing Monday cover those installed in September, currently taxing products between 5% and 10%.
Items that will be subject to the highest bracket of 25% include liquefied natural gas, honey, industrial tools and furniture. Fertilizer, toothpaste, paper and generators will be subject to 20% tariffs.
Trump's comments did little to reverse the market's negative sentiment. Investors rushed to take cover as stocks took a beating following the breakdown of talks and the U.S. tariff hikes at the end of last week.
Apple shares shed more than 5%, as the new round of tariffs were expected to cover iPhones, which are made in China. Shares of China-dependent companies such as Boeing and Caterpillar also led the decline.
"I think it will be difficult to reach a deal by the G-20," Howard Shatz, a senior economist at the Rand Corporation, told the Nikkei Asian Review. "If the U.S. is serious that it wants to see Chinese enforcement and if it’s serious that it doesn’t want to remove the tariffs immediately, then I think the negotiation is going to take a lot longer," he said.
The U.S. raised tariffs on $200 billion in Chinese imports to 25% from 10% on Friday and has said it plans to impose new duties on the $325 billion in Chinese goods not yet affected by the trade war levies.
The prospect of a 25% tariff on all Chinese exports to the U.S. ignited debate on Wall Street about fears of a recession.
Morgan Stanley's Chief Investment Officer Mike Wilson and a team of equity strategists wrote in a research note Monday that "demand destruction and ailing confidence" resulting from 25% tariffs on all Chinese exports to the U.S. would "increase the potential impacts well beyond just higher costs and would likely lead to an economic recession."
If 25% tariffs were imposed on the entirety of China's exports, "this has the potential to tip the U.S. economy into recession given the cost issues companies are already dealing with," he wrote.
Goldman Sachs, meanwhile, said on Saturday that further escalation of the trade war could result in a hit to U.S. gross domestic product as large as 0.4%, and that the growth impact could "worsen considerably" if tensions sparked a major sell-off in the equity market.
Goldman also said that if the escalation were to continue, "it would raise the odds of core inflation rising noticeably above 2% next year." Under such scenario, it "could slightly increase the likelihood of a rate hike," it said.
In a series of Monday morning tweets, Trump rejected the notion that American consumers will bear most of the brunt of tariffs Washington raised against Chinese goods last week and said that faced with higher tariffs, many companies will be leaving China for Vietnam and other Asian countries. "That's why China wants to make a deal so badly!" he wrote.
"China should not retaliate," Trump said, warning that it "will only get worse," if they do. China announced its retaliatory tariffs just hours later.
On the U.S. bond market, investors flocked to the safe haven of U.S. Treasurys. The yield on benchmark 10-year treasuries fell to 2.41% at one point, its lowest since the end of March.
Market players also snapped up the yen. The Japanese currency reached its strongest level against the greenback since early February at one point, trading for about 109.05 to the dollar.
Alex Fang and Marrian Zhou in New York contributed to this report.