NEW YORK (AP) — After an early jolt, stocks have rallied back and moved higher Wednesday as investors weighed whether back-and-forth tariff threats between the U.S. and China could escalate into full-fledged trade hostilities, or if the two sides could eventually settle their differences.
The S&P 500 index and the Dow Jones industrial average erased early losses — the Dow fell as much as 501 points. While industrial and chemical companies remain sharply lower, consumer goods makers and some retailers are up. Technology stocks have turned higher.
The early declines followed an announcement by the Chinese government that it plans to impose tariffs of 25 percent on a list of more than 100 U.S. goods worth $50 billion, including soybeans and aircraft. The duties are in retaliation for U.S. plans to raise duties on a similar amount of Chinese goods.
But none of the tariffs have taken effect yet, and Trump administration officials including National Economic Council Director Larry Kudlow suggested the U.S. tariffs won't be implemented if China lowers barriers to trade.
"The most likely outcome is smoke, but no fire," said Bill Adams, senior international economist at PNC Financial. "The amount that both countries have invested in bilateral trade cooperation and economic cooperation is so significant that the costs of going back would be very painful, and more than either country would want to bear."
The S&P 500 index added 14 points, or 0.5 percent, to 2,628 as of 2:30 p.m. Eastern time. The Dow Jones industrial average climbed 86 points, or 0.4 percent, to 24,120. The Nasdaq composite rose 49 points, or 0.7 percent, to 6,990. The Russell 2000 index of smaller-company stocks gained 10 points, or 0.7 percent, to 1,522.
The Trump administration on Tuesday released a list of 1,300 imported Chinese products, including industrial robots and telecoms gear, subject to potential tariffs to protest Beijing's alleged theft of U.S. technology. China's envoy to the WTO said Beijing would challenge the U.S. moves.
Industrial companies were rocked. Aerospace company Boeing shed $6.84, or 2.1 percent, to $323.98 and farm equipment maker Deere lost $5.72, or 3.7 percent, to $147.32.
Soybean futures traded on the CBOT fell 2.2 percent.
Adams, of PNC Financial, said the tariffs would be especially painful for companies in agriculture: machinery makers in the U.S. would pay more for imported components, and they wouldn't sell as much food in China because their products would be more expensive. He said that will stir up political pressure against the trade sanctions.
However Adams said that there was good news for food producers, as the Chinese government proposed duties on imported beef, but not pork or chicken. Hormel jumped $2.02, or 5.9 percent, to $36.24 and Tyson Foods rose $1.82, or 2.6 percent, to $71.57.
European stocks also fell. Germany's DAX lost 0.4 percent while the CAC 40 in France dipped 0.2 percent. The FTSE 100 in Britain gained 0.1 percent.
Hong Kong's Hang Seng slumped 2.2 percent with the decline accelerating in the final minutes of trading after Beijing announced specifics of its tariff hikes. Most other Asian indexes had closed before China announced its response to the U.S. tariff plans.
The biggest worry for investors is that an escalating trade war will derail a global economy that is largely growing in unison. The U.S. economy has been humming along with a strong job market, while Brazil just last year emerged from its punishing recession and growth in the euro area has reached its highest level in a decade. The global economy is expected to grow 3.9 percent this year, which would be its strongest showing in seven years, according to the International Monetary Fund.
But economists say a trade war would drag down growth for the U.S. and other countries in a number of ways. Barriers to trade would obviously hurt U.S. exporters. But they could also hurt U.S. companies or individuals that don't do any exporting, if they have to pay higher costs for imported products. If the higher costs causes inflation to accelerate, central banks could be forced to raise interest rates more quickly, which would put another drag on economic growth.
Elsewhere, homebuilders rose a following strong quarterly report from Lennar, which gained $5.31, or 9.3 percent, to $62.40. D.R. Horton added $2.50, or 5.8 percent, to $45.38.
After a big early loss, U.S. crude dipped 14 cents to $63.37 a barrel in New York while Brent crude, used to price international oils, fell 9 cents to $68.03 a barrel in London.
Wholesale gasoline stayed at $1.98 a gallon. Heating oil lost 2 cents to $1.98 a gallon. Natural gas rose 2 cents to $2.72 per 1,000 cubic feet.
The market has alternated between big losses and sharp recoveries as investors worry about the trade tensions, as well as controversies surrounding technology companies like Facebook. The S&P 500 has fallen 4 percent since March 1, the day President Donald Trump said he intended to place tariffs on steel and aluminum imports.
Bond prices turned lower. The yield on the 10-year Treasury note rose to 2.79 percent from 2.77 percent. Gold prices jumped as much as 0.9 percent early on, but finished up just $2.90, or 0.2 percent, at $1,340.20 an ounce. Silver fell 14 cents to $16.25 an ounce and Copper lost 5 cents to $3.01 a pound.
After an early loss, the dollar rose to 106.72 yen from 106.61 yen. The euro rose to $1.2278 from $1.2267.
AP Business Writers Stan Choe contributed from New York and Kelvin Chan contributed from Hong Kong.
AP Markets Writer Marley Jay can be reached at http://twitter.com/MarleyJayAP . His work can be found at https://apnews.com/search/marley%20jay