Associated Press

Stocks plunged on Friday after the Trump administration threatened 5% tariffs on all Mexican exports to the US, an amount the White House said would rise to 25% in October unless the "illegal immigration problem is remedied."

Traders also took cover after China said it had mapped out how to restrict America's supply of rare-earth metals to hurt the US economy.

China also said its manufacturing activity contracted in May as US tariffs took a toll.

"Today's triple hit of bad news has proved too much for investors to stomach," one analyst said.

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US stocks fell sharply on Friday after the Trump administration threatened tariffs on all imports from Mexico if the country did not do more to reduce illegal crossings at the southern US border. China's confirmation that it has planned out how to restrict America's supply of critical rare-earth metals, and a decline in Chinese manufacturing in May, also weighed on markets.

All three of the major averages were down at least 1.3%, with the Dow Jones Industrial Average closing lower by more than 350 points. Friday's sell-off pushed the S&P's May loss to 6.5%, and closed the chapter on the index's first down month since December.

"On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP," President Donald Trump tweeted. "The Tariff will gradually increase until the Illegal Immigration problem is remedied at which time the Tariffs will be removed."

The tariffs would rise monthly until they reach 25% at the start of October and remain at that level "until Mexico substantially stops the illegal inflow of aliens coming through its territory," the White House said in a statement. The duties have global implications, as thousands of multinationals operate in Mexico including Ford, General Motors, Coca-Cola, IBM, John Deere, and Toyota, according to the BBC.

"Trump is going all out here," said Jasper Lawler, the head of research at London Capital Group. "The move to start a trade war on another front has shaken sentiment in an already fragile market."

Shares in automakers that ship cars from Mexico to America were among the hardest hit as investors feared the tariffs would disrupt their Mexican operations and increase costs. General Motors fell 4.25%, Ford slid 2.36%, and Fiat Chrysler dropped 5.82%.

Chipotle Mexican Grill and avocado supplier Calavo Growers fell 2.73% and 3.6%, respectively, as investors bet tariffs would drive up the pair's avocado costs.

The banks BBVA and Santander, which have significant presences in Mexico, dropped 4.23% and 3.45%, respectively.

"Coming at a time of a breakdown in talks with China, it's another blow to bulls and we should consider further downside risks from escalation," said Neil Wilson, the chief market analyst for Markets.com. The US starting "a fight with its neighbor and largest trading partner was not on the agenda," he said.

Traders also took cover on mounting evidence that China might restrict exports of rare-earth metals to the US, where they're used in electronic devices including smartphones, car batteries, and missile-defense systems. The government has mapped out how it will leverage its control of the critical resources to hurt the US economy if the trade dispute escalates further, according to Bloomberg.

Moreover, Chinese manufacturing slowed in May as US tariffs depressed activity. The monthly purchasing managers' index survey showed a contraction of 0.7 percentage points to 49.4%, according to China's National Bureau of Statistics.

The rare-earth threat "represents a new aggressive posture from China," Lawler said, while the manufacturing decline is "heightening concerns over a global growth slowdown."

"Today's triple hit of bad news has proved too much for investors to stomach," he added.

Elsewhere, oil prices slumped, with Brent crude down 3.59% at $64.49 a barrel and West Texas Intermediate off 5.9% at $53.26.

Bond yields fell sharply, with the benchmark 10-year yield down 8 basis points near 2.13%.

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