NEW YORK — Stock futures got hammered Wednesday as trade tensions between the United States and China mount.
The Dow dropped 500 points at the open as wary investors sell off industrial giants with heavy exposure to China.
Nasdaq futures were off 2 percent, while S&P 500 futures were off 1.7 percent.
“It is nobody’s best interest for the United States and China to engage in a trade war,” said Sam Stovall, chief investment strategist at CFRA Research.
The Chinese Ministry of Commerce said Wednesday it plans to impose a 25 percent tariff on $50 billion worth of U.S. exports, including planes, cars soybeans and chemicals.
China’s move is in retaliation to the Trump administration announcing Tuesday that it would to impose tariffs on about 1,300 Chinese goods worth about $50 billion annually.
The tariffs will not go into effect immediately, leaving the door open for the countries to negotiate.
The Trump administration said it will hold a public hearing for US businesses about its plans next month.
Boeing, General Motors, Ford and Caterpillar declined sharply in premarket trade. Tech companies, including Advanced Micro Devices, also dropped.
U.S. oil futures dipped almost 2 percent to trade at $62.35 per barrel. The price of soybeans, a major U.S. agricultural export to China, fell close to 5 percent.
“If protecting U.S. intellectual property is the ultimate goal here, I’m not sure how destroying shareholder wealth, damaging CEO confidence and making the American farmer the main sacrificial lamb here after [six] years of pain on the farm is going to get us there,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note Wednesday.
Investors sought safety in gold, which gained 1 percent, and U.S. Treasury bonds.
The yield on the 10-year U.S. Treasury note fell to 2.76 percent as investor demand for the steady returns of bonds shot up their prices. Yields move opposite to prices.
Analysts are weighing whether the tit-for-tat moves signal that a full-blown trade war between the two countries has arrived.
“Traders are saying ‘I’m going to sell first and ask questions later,'” Stovall said. “From a negotiating perspective, both sides are jockeying for position.”
Stovall noted President Trump’s “modus operandi” was to take a hard line early on in negotiations and adjust if the other side made concessions.
“It is still uncertain how this will play out,” Julian Evans-Pritchard, an economist at Capital Economics, wrote in a research note Wednesday.
“China’s response could embolden Trump to push for broader U.S. tariffs, escalating trade tensions further. Equally likely, however, is that there will be some compromise that allows both sides to row back, or at the very least, water down the proposed tariffs,” he said.