North American stock markets plunged in afternoon trading Friday after comments from the White House heightened the prospect of a global trade war and the subsequent risks to the economy.

The Dow Jones industrial average fell as low as 23,738, dropping more than 700 points, or 3.1 per cent, before paring losses to close at 23,932 — a slide of 573 — or 2.3 per cent.

The broader S&P 500 index lost 2.2 per cent to 2,604, while the tech-heavy Nasdaq composite fell 2.3 per cent to 6,915 points.

The Nasdaq was the biggest loser of the week, falling more than two per cent, while the Dow lost 0.7 per cent and the S&P 500 was down 1.4 per cent.

Markets were down this morning after the Chinese government vowed to "counterattack with great strength" if U.S. President Donald Trump went ahead with plans of tariffs on an additional $100 billion worth of Chinese goods.

But stocks started to take a steeper slide in the afternoon after White House officials said that there could be some fluctuations in stock markets as a result of the U.S.'s trade dispute with China.

Industrial giants like Boeing and Caterpillar were among the big losers, both losing over three per cent.

Trade tensions

Top economic adviser Larry Kudlow said that a solution to the trade dispute was possible within three months, but the tariffs were not a bluff.

He added that China's response to the first tariff plan was "highly unsatisfactory."

Added to that, government data on Friday showed that the U.S. economy created the fewest jobs in six months in March, but rising wage gains pointed to a tightening labour market, which should lead the Federal Reserve to further raise interest rates this year.

Federal Reserve chairman Jay Powell said it was too soon to know if rising trade tensions would impact the U.S. economy.

With volatility leading to wild swings in equities again this week, CIBC economist Royce Mendes told CBC that the key thing investors need to keep in mind is that "the stock market is not the economy and the economy is not the stock market."

"Of course there's volatility, but fundamentally, the Canadian economy and the U.S. economy because it's so important to Canada, remains on solid footing," he said. "As longer term investors, that's something we should take into account when making decisions."

Oil falls

Meanwhile, along with the trade tensions, falling oil prices weighed on the Canadian market.

Benchmark West Texas crude oil fell 2.3 per cent in New York to $62.05 a barrel. Prices have fallen almost five per cent this week as fears rose that growing trade tensions would reduce oil demand as the global economy slowed.

In Toronto, the S&P/TSX composite index closed down one per cent to 15,207 points, led by declines in materials and energy.

The Canadian dollar closed at an average of 78.35 cents US, up 0.08 of a cent from Thursday.