U.S. stocks and Treasury yields sank on Friday, as President Donald Trump said that American companies are “hereby ordered to immediately start looking for an alternative to China.”

After the close of trading, Trump tweeted that the U.S. would raise existing tariffs on $250 billion of imports from China to 30% from 25%. And on Sept. 1 the U.S. now plans to introduce tariffs of 15%, rather than the 10% previously planned, on the remaining $300 billion of Chinese goods, though the levies on some of those products have been delayed.

That may have been a less intense escalation than feared. Futures on the SPDR S&P 500 ETF Trust (ticker: SPY) were slightly higher.

Still, the comments and increased tariffs were an unexpected intensification of the U.S. trade war with China. Trump’s initial remarks sent markets reeling just moments after comments from Federal Reserve Chair Jerome Powell had soothed investors’ nerves and helped stocks recover from early declines.

The Dow Jones Industrial Average closed down 623.34 points, or 2.4%, at 25628.90. The S&P 500 dropped 2.6% and the Nasdaq Composite fell 3%.

The day’s events began before U.S. stock markets opened, when China announced new tariffs on U.S. products, sending futures on the major indexes slipping. Trump responded with a flurry of threats on Twitter.

“Our Country has lost, stupidly, Trillions of Dollars with China over many years,” Trump said. “They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”

It’s unclear what, if anything, Trump can do to enforce his Twitter order to U.S. companies. The case of Huawei Technologies may be instructive. While the U.S. government is banned from buying goods from the Chinese telecommunications company, the Commerce Department has delayed a measure that would extend that ban to private-sector U.S. companies. That ban is now expected to go into effect in mid-November.

Investors were betting that the Fed would respond to the heightened trade tensions with easier monetary policy. Financial markets were pricing in nearly three 25-basis-point rate cuts on Friday, compared with two reductions on Thursday. A basis point is a hundredth of a percentage point.

Treasury yields ended the day broadly lower, creeping into recession-warning territory. The 10-year Treasury yield closed at 1.523%, slightly below the two-year yield, at 1.528%.

When long-term yields fall below short-term yields, that is known as a “yield curve inversion,” a pricing anomaly that is seen as a recession indicator.

Just moments before the president’s tweets, Powell, speaking during an annual gathering of central bankers in Jackson Hole, Wyo., had soothed markets.

“Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2 percent,” Powell said, according to prepared remarks.

“We will act as appropriate to sustain the expansion,” Powell added.

Powell said central bankers have been “carefully watching developments” in the “three weeks since our July FOMC meeting,” including the U.S. threat of new tariffs on Chinese goods. He also said the Fed has noticed signs of a global slowdown in China and Germany, and is aware of the risks that may come with Brexit and civil unrest in Hong Kong.

Trump was also fiercely critical of Powell in a separate stream of Twitter posts, in which he hinted at a new economic policy that would “be announced shortly.” Trump, who has blamed the Fed for imperiling the economy ahead of his reelection campaign, compared Powell to Chinese President Xi Jinping: “Who is our bigger enemy, Jay Powell or Chairman Xi?”

Write to Alexandra Scaggs at alexandra.scaggs@barrons.com