But after weeks of optimistic statements by Trump and members of his administration about how trade talks were progressing, Trump abruptly escalated tariffs on $200 billion of Chinese goods last week and opened the door to even more - prompting Beijing to hit back Monday by raising the tariff rate on $60 billion of U.S. items.
Paris and Frankfurt both lost more than one percent, while London suffered more modest declines.
Stocks plunged in trading Monday after China announced retaliatory tariffs on USA goods and as prospects for a deal to avert a trade war seemed more remote. The rates of additional tariffs on some of the products will now be increased to 25%, 20%, and 10%.
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"The trade war is driving markets at the moment", said Rory McPherson, head of investment strategy at Psigma Investment Management in London.
The retaliation measure came three days after the United States moved to increase tariffs on US$200 billion worth of Chinese goods from 10% to 25% as of May 10.
Finished electronics have avoided the Trump administration's tariffs on goods imported from China, but soon that may not be the case. -China tariffs, Boeing Co slid 4.9% and Caterpillar Inc fell 4.6% while the Philadelphia Chip index was down 4.7%, posting its biggest percentage drop since January 3 and extending last week's 6% decline.
"We are determined and capable of safeguarding our legitimate rights and interests", Foreign Ministry spokesperson Geng Shuang said. "Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically", Hu warned.
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Security Council resolutions against it which the United States cited in impounding the vessel, as a violation of its sovereignty. However, this latest move was "a total denial of the fundamental spirit" of that meeting according to the statement.
World stock markets turned higher on Tuesday, stabilizing after heavy losses on Wall Street, as investors monitor the escalating dispute between China and the US over trade. "We hope the United States will meet China halfway to address each other's legitimate concerns".
On Friday, Trump raised tariffs on $200 billion of Chinese goods, from 10 per cent to 25 per cent.
On Monday night during state broadcaster CCTV's primetime newscast, the anchor said: "China has already given its answer: talk and the door is open, fight and we'll fight you to the end".
Markus Huber, a trader at City of London Markets, said he expected a deal that would allow both sides to save face.
Sources have said talks stalled after China tried to delete commitments from a draft agreement that its laws would be changed to enact new policies on issues from intellectual property protection to forced technology transfers.
China's retaliatory tariffs a year ago have hit specific industries very hard, like soybean farmers.
Over the weekend White House officials floated the idea that the two leaders could...
Bank of America Merrill analysts said the new Chinese tariffs posed a downside risk of between 1 per cent and 3 per cent for S&P 500 company earnings in 2019. "If that further weakens, (Trump) has a problem". The VIX, however, is still far below the elevated levels it reached at the end of past year when the S&P 500 came extremely close to entering a bear market, meaning a decline of 20% or more from a recent peak.