U.S. stocks retreated Tuesday, though off session lows, after the U.S. launched a new round of tariffs on $112 billion in Chinese goods Saturday, with China retaliating with new levies of its own, while a key gauge of the U.S. manufacturing sector signaled the first contraction in activity in three years.

The new trade barriers and a decline in China’s currency, the yuan, highlighted the uncertainties surrounding the escalating standoff between the two economic superpowers as U.S. markets reopened Tuesday following their closure Monday for the Labor Day holiday.

How did the markets fare?

The Dow Jones Industrial Average DJIA, +1.33% fell 285.26 points, or 1.1%, to 26,118.02, while the S&P 500 index SPX, +1.59% dropped 20.19 points, or 0.7% to 2,906.27. The Nasdaq Composite Index COMP, +2.26% declined 1.1% to 7,874.15, a drop of 88.72 points.

At session lows, the Dow had fallen 425.06 points, or 1.6%, the S&P 500 was down 34.61 points , or 1.2%, while the Nasdaq shed as many as 115.56 points, or 1.5%.

Read:History says the stock market’s volatile August paves the way for more losses in September

What drove the market?

The U.S. manufacturing sector shrank in August, according to the Institute for Supply Management’s purchasing manager’s index, which showed a reading of 49.1 last month, down from 51.2 in July, its lowest since January 2016. Any reading below 50 indicates contraction. The less closely watched Markit PMI for August came in at 50.3, above the previous estimate of 49.9 but still the lowest reading since September 2009.

The ISM data was “weaker than expected, with the market impact of the 2.1-percentage-point drop likely magnified by the level dropping below the 50 mark,” wrote Jim O’Sullivan chief U.S. economists with High Frequency Economics, in a note to clients. Though the reading isn’t enough to signal a coming recession, as manufacturing PMIs usually hit the low 40s during an economic contraction, “the report will undoubtedly add to fears that more weakness is ahead.”

The reading added to worries that the continuing U.S.-China trade war is weighing on manufacturers around the globe as they battle a steady increase in trade barriers between the world’s two largest economies. Beijing filed a complaint with the World Trade Organization over the U.S.’s increase in tariffs, which took effect over the weekend. Bloomberg News also reported Monday that the parties are struggling to agree on what to discuss in upcoming trade talks.

Tuesday morning, President Donald Trump talked up the state of negotiations, writing in a tweet that “we are doing very well,” while urging Beijing to strike a deal before the 2020 presidential election.

Meanwhile, China’s yuan USDCNY, weakened Tuesday, nearing 7.2 to the dollar, after first breaching the psychologically important 7 level a month ago, when Trump announced the latest round of tariffs on Chinese imports that were implemented Sunday. The yuan is seen by some currency traders as a reflection of the intensifying Sino-American trade war.

Meanwhile, concerns over Britain’s exit from the European Union under new Prime Minister Boris Johnson have increased. Johnson has threatened a snap election if a group in parliament succeeds in blocking a so-called no-deal exit, which would result if Britain is unable to reach a separate trade agreement with the EU by the Oct. 31 deadline. Johnson’s Conservative Party lost its parliamentary majority Tuesday when one of its members defected in protest of a no-deal exit, increasing the odds of new elections.

In other data, construction spending rose 0.1% in July after falling 1.3% in June, the Commerce Department said Tuesday, below the 0.3% increase expected by economists polled by Econoday.

Which stocks were in focus?

Boeing Co. BA, +6.83% shares were under pressure Tuesday after a report in The Wall Street Journal over the weekend that the airplane manufacturer had run into difficulties with global regulators that could lead to more delays in bringing the grounded 737 Max fleet back into service. The company’s stock fell 2.7%, amounting to a roughly 66-point drag on the Dow.

Shares of fellow Dow Component Apple Inc. AAPL, +3.75% shed 1.5% after new tariffs hit some of its products, including the Apple Watch.

Chip stocks, which are seen as sensitive to trade tensions, were also under pressure, with Dow constituent Intel Corp. INTC, +1.58% ending the day down 1.5%, while fellow semiconductor firms Advanced Micro Devices Inc. AMD, +2.94% and Micron Technology Inc. MU, -0.66% fell 1.8% and 0.6%, respectively.

Shares of Concho Resources Inc. CXO, +0.27% retreated 5.1% Tuesday, after the energy explorer announced a $1.5 billion share repurchase program, along with the sale of its assets in the New Mexico shelf to an affiliate of Spur Energy Partners LLC for $925 million.

How did other markets trade?

The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, 0.657% fell 3 basis points to 1.471% in Tuesday trade.

In commodities markets, the price of crude oil US:CLV19 fell 1.9% to $54.05 per barrel, while the price of gold US:GCZ19 gained 1.5% Tuesday to $1,552.20 an ounce, a more-than-six-year high. The ICE U.S. Dollar Index DXY, +0.23% , a measure of the U.S. currency against a basket of six major rivals, rose less than 0.1%.