Stocks fell sharply Tuesday morning as Wall Street braced for President Trump Donald John TrumpBiden on Trump's refusal to commit to peaceful transfer of power: 'What country are we in?' Romney: 'Unthinkable and unacceptable' to not commit to peaceful transition of power Two Louisville police officers shot amid Breonna Taylor grand jury protests MORE to impose higher tariffs on Chinese imports after a breakdown in trade negotiations with Beijing.

The Dow Jones Industrial Average closed with a loss 473 points by noon, a 1.8-percent drop, after briefly falling below 26,000 points. The S&P 500 index closed down 1.7 percent, while the Nasdaq composite sank by 2 percent.

The sell-off started during the first hours of trading, following an announcement Monday evening by Treasury Secretary Steven Mnuchin Steven Terner MnuchinHillicon Valley: DOJ proposes tech liability shield reform to Congress | Treasury sanctions individuals, groups tied to Russian malign influence activities | House Republican introduces bill to set standards for self-driving cars Treasury: Trump's payroll tax deferral won't hurt Social Security Treasury sanctions individuals, groups tied to Russian malign influence activities MORE and U.S. Trade Representative Robert Lighthizer Robert (Bob) Emmet LighthizerWhiskey, workers and friends caught in the trade dispute crossfire GOP senator warns quick vote on new NAFTA would be 'huge mistake' Pelosi casts doubt on USMCA deal in 2019 MORE that Trump would raise tariffs on $200 billion worth of Chinese goods, from 10 percent to 25 percent, on Friday.

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Trump announced his intent to raise tariffs on Chinese imports in a pair of Sunday tweets, spurring a steep sell-off in global financial markets Monday morning. But while Asian markets took heavy losses on the news, the Dow recovered almost all of a 470-point drop by the end of Monday trading.

An increase in U.S. tariffs on Chinese goods would be a major setback to trade talks between Washington and Beijing at a time when both sides appeared to be closing in on a deal.

Trump’s threat Sunday to raise tariffs and impose new taxes on more than $300 billion in imports was a surprising turn in negotiations that the president previously said would yield a deal “very soon.”

Several media outlets reported Monday that talks with China hit a roadblock after Beijing refused to agree to measures to halt intellectual property transfers that would require a change to Chinese law.

"We felt we were on track to get somewhere. Over the course of last week we have seen an erosion of commitments by China," Lighthizer said Monday, according to Bloomberg News. He added there were still significant issues to be hammered out in talks.

Chinese Vice Premier Liu He, Beijing's lead on trade negotiations, was scheduled to visit Washington on Thursday, a day before the tariff increase would go into effect.

Trump imposed a 10 percent tariff on $200 billion in Chinese imports last year and delayed the scheduled increase to 25 percent in January as negotiations proceeded. The president has also imposed a 25 percent tariff on $50 billion in Chinese goods.

If Trump follows through with his threat to impose tariffs on an additional $300 billion in Chinese imports, it would likely subject all goods from the country to import taxes.

Updated at 4:35 p.m.