U.S. markets and stock exchange traded funds retreated Friday and were testing their long-term trend lines after President Donald Trump sudden threat of broad tariffs on Mexican goods stoked concerns of an escalating trade war that could push the economy into a recession.

On Friday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 1.5%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was down 1.2% and SPDR S&P 500 ETF (NYSEArca: SPY) declined 1.2%. Both QQQ and SPY were testing their long-term support at the 200-day simple moving average while DIA broke below its long-term trend.

Trump said he will implement a 5% tariff on all Mexico made goods starting June 10, which would then incrementally rise to 25% until illegal immigration across the southern border is addressed, Reuters reports.

“This comes at a time when companies have to be looking at alternatives to the Chinese supply chain. Many thought Mexico would be an alternative, but now that looks in jeopardy,” Cliff Hodge, director of investments at Cornerstone Wealth, told Reuters. “The risk is that these tariffs, along with those imposed on China, push an already soft business cycle into a full-blown recession.”

U.S. carmakers and manufacturers were among the worst hit in Friday’s sell-off as Mexico has become a major supplier of foreign-made cars and goods to the U.S.

Investors feared the new tariffs on Mexican products could further pressure corporate earnings, raise prices for U.S. consumers and slow economic growth.

“This will impact consumer spending. This will impact corporate earnings. This is utilizing a trade policy tool to enforce policy outside of trade, and that sets a concerning precedent and leaves investors wondering how else tariffs could possibly be used,” Kristina Hooper, chief global market strategist at Invesco, told the Wall Street Journal. “Markets were already freaking out over existing tariffs. We’ve just thrown gas on the fire.”

Further weighing on investment sentiment, China warned that it would unveil a so-called hit list of unreliable foreign firms, along with a retaliatory tariffs on imported U.S. goods was set to begin at midnight.

For more information on the markets, visit our current affairs category.

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