(CNN Money) — Wall Street is bracing for more turbulence after China vowed not to back down in a trade war with the United States.
Stock futures fell sharply on Friday morning before rebounding. Dow futures were recently signaling a flat open.
The volatility comes after President Trump’s crackdown on China sent the Dow careening 734 points lower on Thursday. It was Wall Street’s worst day since February 8 and the Dow’s fifth-largest single-day point decline ever.
Asian markets got rocked overnight as the trade worries went global. Japan’s Nikkei 225 plummeted 4.5%, while the Hang Seng in Hong Kong lost 2.5%.
Trump announced plans to impose tariffs on about $50 billion of Chinese imports as part of an effort to halt theft of intellectual property.
China responded hours later in a statement that said the nation “is not afraid of and will not recoil from a trade war.” Beijing promised to fight a trade war “to the end.”
Additionally, officials in China detailed a plan to retaliate to Trump’s aluminum and steel tariffs by imposing about $3 billion worth of imports of US goods.
The worry is that a tit-for-tat situation between the two largest economies in the world will ruin the solid economic backdrop. Investors had been banking on strong growth this year, but a slowdown in trade and dented business and consumer confidence could change that outlook drastically.
Barclays warned in a new report that a trade war would drown out the benefits of Trump’s tax cuts that made Wall Street euphoric.
“The administration is moving forcefully into the anti-trade portion of its policy agenda,” Barclays economist Michael Gapen wrote in a report on Friday.
But it’s too early to tell what the impact will be. Bullish investors hope that the administration will dial back on its tough stance with China, similar to how tariffs on steel and aluminum imports were later scaled back significantly.
“The threat of a misstep remains high,” Raymond James Washington policy analyst Ed Mills wrote in a report, but there is an expectation that “these actions will be watered down or mitigated” in the coming weeks.
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