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Dow Jones drops nearly 400 points amid Trump administration tariffs on China, political instability in Italy


Trader Peter Tuchman works on the floor of the New York Stock Exchange Tuesday. (Richard Drew/AP)

The stock market tumbled Tuesday, as the Trump administration affirmed its intentions to slap China with steep tariffs, while political instability in Italy shook investors around the globe.

The Dow Jones index dropped 392 points, or 1.6%, as Italian investors shed government bonds en masse, prompting U.S. investors to shift their focus to lower-risk stocks as American government bonds surged in response.The benchmark S&P 500 Index followed suit, sinking 31 points, or 1.2%, while the Nasdaq lost 37 points, or 0.5%.

Italy has been in political turmoil since the country's president cherry-picked a new prime minister after the leading far-right coalition refused to withdraw an anti-Euro currency candidate for the government's top economic post. The move ended the coalition's attempt to establish a government, which means a new election is likely going to take place.

The unrest has prompted investors to rapidly dump Italian stocks, sending ripples across the globe.

Meanwhile, the Trump administration sparked renewed fears of a global trade war, announcing Tuesday it will proceed with its proposal to impose 25% tariffs on $50 billion worth of Chinese goods, and place strict restrictions on Chinese investments in U.S. technology industries.

President Trump applauds during a Memorial Day ceremony at Arlington National Cemetery on Monday.
President Trump applauds during a Memorial Day ceremony at Arlington National Cemetery on Monday. (Evan Vucci/AP)

"The United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology," the White House said in a statement.

The announcement comes less than two weeks after Treasury Secretary Steven Mnuchin said a trade war with China was "on hold."

The Chinese government has pledged to retaliate if the Trump administration follows through on the pledged tariffs.

With News Wire Services