Global markets plunge on Donald Trump's shock tariff threat as the US-China trade war escalates

Saul Loeb, Pool/Reuters

U.S. President Donald Trump and Chinese President Xi Jinping (R).

• Asian markets were a sea of red as Donald Trump's trade war threat with China panicked investors.
• Futures on major US indexes dropped 1.8% on the news, tumbling with shares in Asia and Europe.
• London Capital Group, a market analyst firm, said in an email to clients that Trump's threat took the markets by surprise and sent investors "into a risk off frenzy."
• Visit Business Insider's homepage for more stories.

Global markets plunged on Donald Trump's shock tariff threat, after the US-China trade war escalated on Sunday.

Trump threatened to dramatically ramp up the trade war with China unless a breakthrough on trade talks is struck by the end of the week, as previously reported by Business Insider.

Trump said tariffs on $200 billion worth of Chinese goods would increase from 10% to 25%, and that the US would slap an additional $325 billion worth of Chinese goods with a 25% tariff.

The news panicked investors on Monday, as futures on all major US indexes dropped at least 1.8% on the news. Asia was also a sea of red, while both crude oil and WTI fell at least 1%. Hong Kong's Hang Seng index tanked 2.9%, while Europe's benchmark Euro Stoxx 50 dropped 2%.

In an email to clients, market analyst firm London Capital Group said Trump's sudden hard-line on China tariffs "spooked investors," adding: "the re-escalation of the US - China trade dispute hit Asian markets hard as investors dive for safety. The Shanghai composite has plunged over 5%, whilst bourses across Europe are pointing to a loss of 1.5% - 2% on the open."

A Twitter thread posted by Trump on Sunday "caught markets by surprise," London Capital Group said.

Read more: Trump threatens seismic shift in trade war with China, suggesting new tariffs on $325 billion worth of Chinese goods

"Headlines from the trade talks had been indicating that progress was being made and that the two sides were closing in on an agreement.

"If there is one thing the markets dislike, it is the unexpected and Trump's tweet caught the markets completely off-guard sending investors into a risk off frenzy.

"We know from past experience that this could be one of Trump's infamous negotiating tactics, but there is a good chance that this time it will backfire.

"China has cancelled Vice Premier Lui He's trip to Washington for trade talks this week, clearly unimpressed by the prospect of negotiating with a gun held to its head. Suddenly the risk of a full-blown trade war has increased sharply, and the markets are reflecting this."