U.S. stocks sank in New York, with the S&P 500 headed for its biggest decline since January 3. Trade war fears hit the shares of companies from Apple Inc. to Boeing Co., while Treasuries rallied with the yen on demand for for haven assets.

Higher U.S. tariffs will drive up the Federal Reserve's preferred measure of underlying inflation, and further escalation could raise consumer prices even more and dent U.S. growth, Goldman Sachs Group Inc. economists said in a research note.

China's move to hike tariffs came in response to the U.S.'s decision last week to increase levies on $200 billion in Chinese imports to 25 percent, from 10 percent. Trump on Monday accused China of backing out of a deal that was taking shape with U.S. officials, saying Beijing reneged on an agreement to enshrine a wide range of reforms in Chinese law.

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don't make a deal because companies will be forced to leave China for other countries,” Trump wrote on Twitter. “You had a great deal, almost completed, & you backed out!”

China's retaliation on Monday matches Trump's latest move in that it simply hikes the duties on a list of thousands of items that had already been targeted in an earlier phase of the trade war.

Beijing's retaliation on about $60 billion of U.S. goods includes extra tariffs of as much as 25 percent on goods ranging from small aircraft, computers, and textiles to chemicals, meat, wheat, wine, and liquefied natural gas (LNG). Some auto parts remain exempted from retaliatory charges. Imports of cars aren't affected, as an extra duty of 25 percent from a separate list was suspended during the negotiations as a sign of goodwill.

Investors in BMW AG and Daimler AG breathed a sigh of relief as finished vehicles were left off the list of good targeted by China tariffs. The German carmakers are the biggest importers into the Chinese market of vehicles from the U.S. They would have been hard hit, along with Tesla and Ford, had China decided to raise the import duty on U.S.-built autos to 40 percent, from 15 percent.

Both the U.S. and China had tried to project calm since the latest round of discussions ended on Friday and said that they plan to continue negotiations in the hopes of avoiding a tumble in markets and broader economic damage. But that facade masks fundamental divisions, with U.S. officials increasingly convinced that hardliners in Beijing are winning the internal debate on reforms.

Meanwhile, Chinese state media blamed the United States for the impasse and talked up its economic resilience, with the People's Daily saying in a front-page commentary that the U.S. should take full responsibility for the setbacks because it went back on its word and imposed more levies.

The latest breakdown has prompted an escalation in the tariff war between the world's two largest economies that looks increasingly like the International Monetary Fund's (IMF's) and others' worst-case scenario for a global economy already forecast to grow this year at its slowest rate since the immediate aftermath of the 2008 financial crisis.

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