Trader John Bishop works on the floor of the New York Stock Exchange, . Stocks are plunging on Wall Street Monday on worries about how much President Donald Trump's escalating trade war with China will damage the economyFinancial Markets Wall Street, New York, USA - 05 Aug 2019

Global investors are becoming seriously worried about the trade battle between the U.S. and China.

U.S. stocks suffered their worst day of the year Monday as China’s retaliatory actions against the administration pushed trade tensions to new heights, raising fears of a long, drawn-out battle and sparking a massive sell-off.

The Dow Jones Industrial Average nosedived 767 points to 25,717 on the back of Beijing allowing the yuan to break through 7 against the dollar for the first time in over a decade, as well as ordering Chinese companies to cancel purchases of U.S. agricultural goods.

Elsewhere, the S&P 500 shed 2.9 percent and the Nasdaq Composite dropped 3.4 percent.

Fashion and retail stocks did not escape the beating.

Among those hardest hit were Farfetch Ltd., down 7.1 percent to $18.09; Revolve Group, 6 percent to $31.56; J.C. Penney Co. Inc., 5.6 percent to 68 cents; Capri Holdings, 4.5 percent to $31.71; Abercrombie & Fitch Co., 4.1 percent to $16.81, and Macy’s Inc., 3.1 percent at $20.63.

European-listed stocks were also not immune as the sell-off stretched to other parts of the world. Burberry Group slipped 3.8 percent to 21.63 pounds; Kering, 1.9 percent to 442.35 euros, and LVMH Moët Hennessy Louis Vuitton, 4.2 percent to 343.25 euros.

In Asia, the Shanghai Composite Index dropped 1.6 percent and Japan’s Nikkei was 1.7 percent lower.

Instead, investors plowed money into assets traditionally viewed as safe havens, with both government bonds and the Japanese yen rallying.

China’s actions followed President Trump’s recent announcement that he would next month impose 10 percent tariffs on $300 billion worth of Chinese imports, including apparel and footwear, and fueled a further war of words between the two superpowers.

Trump wasted no time Monday accusing China via Twitter of “currency manipulation” and a “major violation,” while Chinese officials hit back, issuing a statement insisting that the fall in the value of the yuan was not a “competitive devaluation.”

“This fluctuation is driven and determined by the market,” People’s Bank of China Governor Yi Gang said. “Whether it is from the fundamentals of the Chinese economy or from the balance of market supply and demand, the current RMB exchange rate is at an appropriate level. Although the RMB exchange rate has fluctuated due to recent external uncertainties, I am confident that the RMB will continue to be a strong currency.”

Nevertheless, Keith Wade, chief economist and strategist at Schroders, believes the currency movement is “no coincidence” as a weaker Chinese currency can help offset some of the effects of higher tariffs.

“Rather than backing down in response to the U.S., China is upping the ante,” he said. “The exchange rate had been on the agenda at the trade talks, with China refraining from allowing the currency to weaken whilst negotiations seemed to be making progress.”

Whatever the reason for the currency weakness, analysts are not expecting tensions to ease anytime soon, placing further downward pressure on stocks.

Economic consultancy Capital Economics is forecasting that the S&P 500 will fall by another 15 percent between now and the end of this year, as “investors’ lofty expectations for earnings are dashed by continued sluggish growth in the U.S. and elsewhere, which won’t be helped by an escalating trade war.”

“China’s retaliation has already provoked a hostile response from the U.S. president. So we think that investors are right to mark down the prices of global equities in the expectation of a further escalation of the trade war,” Julian Evans-Pritchard, a senior economist at Capital Economics, said. “The fall in U.S. equities in particular is an interesting development, because it highlights how they are no longer benefiting from a view that trade wars are ‘easy to win.'”

Tensions are also expected to continue to weigh on global economic activity, with Schroders’ Wade forecasting that investment plans will likely be delayed or canceled and trade suffering. “China and the Asian supply chain will be most affected, but U.S. growth will also suffer,” he said, adding that alongside a stronger U.S. dollar, such an environment may well lead the U.S. Federal Reserve to cut rates faster and further.

The Federal Reserve last week reduced interest rates in a bid to shelter the U.S. economy from the trade dispute and amid signs that the global economic backdrop could be faltering.