Stock markets in the US, Europe and Asia plunged after US President Donald J. Trump threatened new tariffs on China and putting a rumoured trade deal in doubt.

Trump said he would raise tariffs to 25% on $200 billion of Chinese imports by 10 May and introduce the same rate on an additional $325 billion. The markets had believed that the two sides were close to an agreement, but US Trade Representative Robert Lighthizer confirmed that Washington is ready to hike tariffs, citing “an erosion in China’s commitments”.

If implemented, this move could reduce China’s GDP by 2% over the next year, according to UBS economist Wang Tao.

Trump’s warning comes less than a week after US Treasury Secretary Steven Mnuchin described ongoing negotiations as “productive”. A hike on tariffs was expected in January 2019,  but the deadline was pushed back due to negotiations.

A 100-strong Chinese trade delegation is expected in Washington on Wednesday for the resumption of talks, while US media speculated that China was ready to suspend talks. China’s Ministry of Commerce said vice premier Liu He should be expected in Washington on Thursday.

Following Trump’s announcement, the US’ Dow Jones was down 1.4%, the Nasdaq was down 1.9%, and the S&P 500 was down 1.3% on 7 May. The price of agricultural commodities, such as soybeans, also plunged by 2,2%.

Sources familiar with the negotiations said the US is frustrated as China appears to be backpedalling on earlier commitments on forced technology transfers.