PALM BEACH, Florida/BEIJING/WASHINGTON (Reuters) - Global stock markets plummeted further on Friday after China said it would strike back at U.S. President Donald Trump with additional tariffs of 34% on U.S. goods, escalating a trade war that has rattled investors and fed fears of a coming recession.

Wall Street was down sharply at mid-afternoon on Friday in the wake of China's response, a day after the Trump administration's sweeping levies knocked off $2.4 trillion from U.S. equities.

The S&P 500 index was down 5.4%, while the Nasdaq had slumped by 5.3% and the Dow Jones Industrial Index had lost 4.9%.

Intensifying the standoff between the world's two biggest economies, Beijing also announced controls on exports of some rare earths, while Trump doubled down as well, vowing not to change course.

China added 11 U.S. bodies to the "unreliable entity" list, which allows Beijing to take punitive actions against foreign entities, including firms linked to arms sales to democratically governed Taiwan, which China claims as part of its territory.

Other impacted nations like Canada have also readied retaliation in a mounting trade war after Trump raised U.S. tariff barriers to the highest levels in more than a century, leading to a plunge in world financial markets. 

Investment bank J.P. Morgan estimated a 60% chance of the global economy entering a recession by year-end, up from 40% previously.

Shares of big tech stocks fell, helping to drive the Nasdaq toward a bear market. Companies with big exposure to China and Taiwan for manufacturing their products were hard-hit, with Apple ( AAPL ) down 6.4% and Nvidia ( NVDA ) falling 7.7%.

The Nasdaq was on pace to close down over 20% from its all-time closing high in December.

"This is significant and is unlikely to be over, hence the negative market reactions," said Stephane Ekolo, Market & Equity Strategist, Tradition, London. "Investors are afraid of a 'tit for tat' trade war situation."

Federal Reserve Chair Jerome Powell told a business journalists conference on Friday the tariffs were "larger than expected" and elevated the risk of both higher inflation and slower growth.

The Fed can wait for more data to decide how monetary policy should respond, but it will focus on keeping inflation expectations anchored if Trump's tariffs sparked more persistent price pressures, Powell said.

He did not directly address the U.S. stocks selloff but acknowledged that uncertainty had paused business decisions.

"People are just, they just are kind of waiting for clarity," Powell said. "I can't tell you when that will pass, but you know, ultimately it will pass."

Just before Powell spoke, Trump said in a Truth Social post that it was the "perfect time" for the Fed to cut interest rates. "CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!" Trump wrote.

GLOBAL EFFECTS

Trump's team has characterized the market turbulence as an adjustment that would prove beneficial in the long run.

In an interview with conservative host Tucker Carlson released on Friday, U.S. Treasury Secretary Scott Bessent asserted that the plunge in U.S. stocks was driven more by the surprise emergence of China's DeepSeek artificial intelligence tool than by Trump's policies.

The White House touted stronger-than-expected job data on Friday, after a Labor Department report showed the U.S. economy added far more jobs in March than predicted.

But Trump's sweeping import tariffs could test the labor market's resilience in the months ahead amid sagging business confidence.

"To the many investors coming into the United States and investing massive amounts of money, my policies will never change. This is a great time to get rich, richer than ever before!!!" Trump said in a social media post in all caps.

After Beijing's retaliation, he posted: "China played it wrong, they panicked - the one thing they cannot afford to do!"

Trump also said on Friday he was extending by 75 days a deadline for Chinese technology company ByteDance to sell the short video app TikTok or face a U.S. ban.

"We hope to continue working in good faith with China, who I understand is not very happy about our reciprocal tariffs," he wrote on social media.

U.S. Secretary of State Marco Rubio on Friday downplayed the global market swoon.

"Their economies are not crashing. Their markets are reacting to a dramatic change in the global order in terms of trade," he said at a press conference in Brussels. "The markets will adjust."

In contrast to the U.S. labor report, Canada's total employment fell and the unemployment rate ticked up in March, data showed on Friday. The country's first monthly decrease in jobs since 2022 was prompted by uncertainty around tariffs, which forced companies to pause hiring and spurred some layoffs.

In Japan, one of the top U.S. trading partners, Prime Minister Shigeru Ishiba said the tariffs had created a "national crisis" as a plunge in banking shares on Friday set Tokyo's stock market on course for its worst week in years.

DIVISIONS AND MIXED SIGNALS

With European shares also tumbling to the biggest weekly losses in years, the European Union's trade commissioner, Maros Sefcovic, said he held a "frank" two-hour call with U.S. Secretary of Commerce Howard Lutnick and U.S. Trade Representative Jamieson Greer.

"I was clear: US tariffs are damaging, unjustified," Sefcovic wrote on social media. "The EU's committed to meaningful negotiations but also prepared to defend our interests."

The EU is divided on how best to respond to Trump's tariffs. Countries cautious about retaliating and thereby raising the stakes in the standoff with the U.S. include Ireland, Italy, Poland and the Scandinavian nations.

French President Emmanuel Macron led the charge on Thursday by calling on companies to freeze investment in the U.S.

However, French Finance Minister Eric Lombard later cautioned against like-for-like countermeasures on the U.S. tariffs, warning this would also rebound on European consumers. 

The U.S. tariffs could jack up the price for U.S. shoppers of everything from cannabis to running shoes to Apple's ( AAPL ) iPhone. A high-end iPhone could cost nearly $2,300 if Apple ( AAPL ) passes the costs on to consumers, based on projections from Rosenblatt Securities.

China is retaliating for Trump's tariffs on imports from the world's No. 2 economy. The European Union faces a 20% duty.

Trump says "reciprocal" tariffs are a response to barriers put on U.S. goods, while administration officials said the tariffs would create manufacturing jobs at home and open up export markets abroad, although they cautioned it would take time to see results.