Asian and European equities have once again been impacted by talk of a full-blown trade war after the European Commission threatened retaliation on $300bn of US products.
In a written submission to the US Department of Commerce seen by the Financial Times, Brussels set out its response to US President Donald Trump's threat to slap tariffs on imported vehicles.
The European Commission said the measures could apply "across sectors of the US economy" accounting for as much as $294bn worth of goods.
Trump said on Sunday the European Union was "as bad" as China in terms of running a trade surplus with the US.
Following the heightening tensions over the weekend, Asian and European markets both fell in Monday trading with the Shanghai and Shenzhen CSI 300 index suffering one of its worst days of the year, dropping 2.9% to 3,408 points.
Furthermore, after hitting its largest ever monthly fall against the US dollar since records began in 1994 last month, the renminbi dropped a further to 0.3% to 6.6335.
The Nikkei 225 and Topix indices were also in the red, dropping 2.2% to 21,812 points and 2.1% to 1,695 points respectively.
Trade war fears also spread into Europe with Germany's Dax index, viewed as a measure of global trade due to its export-heavy nature, was down 3.5% to 12,275 points by lunchtime while the FTSE 100 was also hit, declining 1% to 7,558 points.
Elsewhere, the CAC 40 was down 0.8% to 5,280 points while the Euro Stoxx 50 fell 0.5% to 3,376 points.
This is not the first time the threat of retaliations has impacted markets. Last month, European and Asian equities fell after the Chinese government vowed retaliation in response to US President Donald Trump's $200bn trade tariffs threat on Chinese goods.
A statement from Beijing on 19 June said: "If the US loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures and retaliate forcefully."
Geoff Yu, head of the UK investment office at UBS Wealth Management, told the FT: "The trade dispute continues to weigh on sentiment globally but we would continue to stress that this is perhaps only a partial story as the domestic economic situation in China remains a worry.
"As for Europe, so far clearly it has been less a case of tariff impact, but in a trade war open economies will suffer and severe escalation — which is not our base case — will certainly have a pronounced impact."
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