The S&P 500 and the tech-heavy Nasdaq turned in their worst performances this year on Monday after China retaliated in kind for massive U.S. tariff increases, ignoring threats from President Trump.

One of the most widely followed gauges of U.S. stock market performance, the S&P tumbled 2.4%, the biggest decline since early December, as optimism about a trade agreement between the world's two largest economies gave way to fears of an escalating trade war. The Nasdaq sank 3.4%, and the blue-chip Dow Jones industrial average fell 617 points, or 2.4%, its worst day since early January.

China will impose duties of 5% to 25% on hundreds of U.S. products including batteries, spinach and coffee as of June 1, the country's finance ministry said, responding to Trump's decision to more than double tariffs on $200 billion of Chinese goods to 25% late last week following deterioration in trade talks that began last fall. The increase took effect at 12:01 a.m. Friday, May 10, and will be followed by duties of the same level on the remaining $325 billion of goods the country purchases from China, Trump says.

"We'll tend to grind on for quite a while here," Wayne Wicker, who oversees $28.8 billion in retirement plans for Washington-based ICMA-RC, told the Washington Examiner. "It's probably one step forward, two steps back at the moment."

Negotiations may be nearly impossible to restart if Trump carries out his threat to add 25% duties to the remaining $325 billion in Chinese imports, said Seth Carpenter, an economist with the Swiss lender UBS.

The president, who hasn't yet made a final decision, has maintained his tactics will not only force Beijing to open its markets to U.S. businesses but convince it to end decades of intellectual property theft, all the while generating more cash for the U.S.

"I love the position we're in," Trump said at the White House on Monday, implying again that China is footing the bill for the tariffs, which are actually paid by U.S. companies to customs officials when their orders arrive in port.

"Our manufacturers will be very happy," he added, contradicting statements from producers small and large that tariffs are driving up supply costs and eroding their profits. "Our government is very happy because we're taking in tens of billions of dollars. I think it's working out very well."

The administration had previously paused levy increases for three months after Trump and Chinese President Xi Jinping decided during a Buenos Aires meeting in late November to work toward a long-term trade agreement.

The moratorium expired in early March, but Trump stretched the timetable for talks and was upbeat about progress as recently as last week. That soured when Beijing began trying to walk back its commitments on pivotal terms, according to U.S. Trade Representative Robert Lighthizer, the administration's chief negotiator.

Trump had warned China against retaliating, arguing that companies would start to move manufacturing operations elsewhere to avoid his tariffs and there would be "nobody left in China to do business with." That, he said, is "why China wants to make a deal so badly."

..There will be nobody left in China to do business with. Very bad for China, very good for USA! But China has taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse! — Donald J. Trump (@realDonaldTrump) May 13, 2019

While small businesses in particular expect to pass on almost all of the higher tariffs to their customers and fear losing sales as a result, they will have a short grace period, noted Jan Hatzius, an economist with the New York investment bank Goldman Sachs. Goods sent from China before May 10, which take about three weeks to arrive in the U.S., will still be assessed at the previous 10% rate.

"This delay creates an unofficial window during which the two sides could potentially negotiate an agreement to at least postpone the tariff rate increase until a later date," said Hatzius, who expects the U.S. and China to reach a trade deal later this year that includes gradually scaling back the duties, starting with those imposed most recently.