Stocks extended last week’s losses as prospects for a breakthrough in U.S.-China trade discussions dimmed.

The S&P 500 (^GSPC) fell 2.41%, or 69.53 points, as of market close. The Dow (^DJI) fell 2.38%, or 617.38 points, after earlier in the session being down more than 700 points. The Nasdaq (^IXIC) declined 3.41%, or 269.92 points.

China is set to impose a tariff rate of as high as 25% on a portion of $60 billion worth of U.S. goods starting June 1, the Chinese government announced Monday. The move is an apparent retaliation against the recent hike to levies the Trump administration implemented on billions of dollars worth of Chinese imports late last week.

On Friday, the Trump administration raised the rate of tariffs on $200 billion worth of Chinese imports to 25%, and announced that further tariffs on another $300 billion in imports would be forthcoming. Trump has claimed repeatedly that China “broke the deal” the two sides had been working toward over the past several months, leading to the use of tariffs to try and extract further concessions.

The sudden end to five months of a trade ceasefire with China rattled markets, dragging the S&P 500 to its worst weekly decline since just before Christmas. Meanwhile, haven assets have continued to rise, with the yield on the 10-year Treasury note falling to its lowest close since late March.

The CBOE Volatility Index, or VIX, jumped to above 19.6 as of 9:47 a.m. ET. The so-called “fear” gauge measuring risk and investor sentiment initially spiked after 8:10 a.m. ET, after the first reports of China’s retaliatory tariffs were released.

Analysts are bracing for the escalating trade tensions to brake the pace of growth in the U.S. In the first quarter, the U.S. economy expanded at a better-than-expected rate of 3.2%.

“With rising protectionist measures, the damage to economic growth is increasing. If current U.S. measures and those likely to be taken by China remain in place, GDP can be expected to be hit to the tune of 0.5% in China, 0.25% in the U.S., and 0.15% globally,” Klaus Baader of Societe Generale wrote in a note. “If the U.S. levies tariffs on all Chinese goods, and China retaliates, these losses could easily double.”

Others prognosticators noted that the implications of tariffs will hit companies’ bottom lines and the broader economy.

“The potential cost headwinds of 25% tariffs on on all Chinese exports to the U.S. could be in the range of 1.0-1.5% of the index’s net income,” Morgan Stanley analyst Michael Wilson wrote in a note Monday, referring to companies within the S&P 500 index.

“But demand destruction and ailing confidence increase the potential impacts well beyond just higher costs and would likely lead to an economic recession in our view,” he added.

A further deterioration of trade-deal progress would apply broad downward pressure to equities, some sectors are especially vulnerable. Shares of manufacturing bellwethers including Caterpillar (CAT) and 3M (MMM) each dropped by more than 5% last week, underperforming the broader market’s about 2% decline.

Tech investors are also watching trade talks unfold “with white knuckles,” Wedbush analyst Dan Ives wrote in a note.

“The core underlying fear in the eyes of tech investors is around what this move as well as a retaliation move from the Chinese can do to the tech food chain, semi stocks (Intel, Nvidia, etc.), and clearly Apple, which heavily relies on China both on the supply (Foxconn) as well as demand front,” Ives said.

“With worries that Trump potentially plans to enact additional tariffs on Chinese goods down the road if this trade situation spiral further, tech stocks are ultimately caught in the crossfire, with Apple and the semiconductor space remaining front and center and thus weighing on stocks accordingly this morning,” he added.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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