 is threatening to more than double tariffs on Chinese goods if a trade deal between the two countries falls through. The escalating tension caused stocks to plunge on Wall Street Tuesday. All the major indexes were down between one and a half and two percent. CBS News White House correspondent Ben Tracy reports. The nearly 500 point drop closed out the second worst trading day of the year. A sign that Wall Street is worried that its investment in a U.S.-China trade deal may not pay off. Because the U.S. and China are the two largest economies in the world, any trade conflict that ensues will spill over to the rest of the world. And that could cause global growth to actually slow down. Just last Friday, President Trump sounded optimistic. We're getting close to a very historic monumental deal. But now he's threatening new tariffs and his chief trade negotiators are accusing the Chinese of quote, reneging on unspecified agreements. As of 1201 this Friday, President Trump says he will raise tariffs from 10 percent to 25 percent on $200 billion worth of Chinese goods. Tariffs make the cost of imports more expensive for U.S. companies and consumers. A pro-free trade group estimates the tariff increase would cost a family of four about $767 per year in up to one million U.S. jobs. We've been ripped off by China. The Chinese are expected to retaliate with tariffs of their own. Back at Heard American Farmers, who already lost billions during last year's tariff fight. It will hurt the economy here. It will hurt the economy in China. But I don't know how to get China to stop cheating unless somebody stands up to them. China's vice premier is coming to Washington Thursday for an 11th round of trade talks, and so far the Chinese are not backing down. An editorial today in a state-run newspaper reportedly said, we will not take any step back. Do not even think about it. It's not clear if President Trump's tariff threat is a negotiating tactic, or if these talks really are about to fall apart, but apparently trade does make for strange bedfellows. Chuck Schumer, a Democrat in the Senate, tweeted that President Trump should hang tough on China. Tanya. Ben Tracy, thank you so much for that. Let's bring in Melissa Armo. She is the founder and owner of the stock swoosh. Melissa, thank you so much for being with us. Thanks for having me. So is the trade war with China the only reason behind today's drop? Definitely. And it's a huge reason behind the last two days of fall-off because everyone is concerned what's going to happen because there was an assumption that there really was a deal that was going to happen sooner rather than later, about a month ago. Right. And as we know, President Trump tweeted about the tariffs over the weekend, then Wall Street sees the drop on Monday, but stocks rebounded. So then why was Tuesday's sell-off so much more dramatic than Monday's? Because word came out, news came out about more why this was happening, because China was reneging on certain things that we're going to agree to in the agreement. And so my take on this is that this is not done. This is not done by a long shot. I don't think that there's going to be an agreement made on Friday, and we'll have to see if the Trump administration then does increase tariffs or set to increase from 10 percent to 25 percent. So that's huge. That is a big jump. And I honestly think that that's probably going to happen, because Trump really has been playing hardball with China. And yeah, there is a new study out by economists at UCLA and other institutions finding that these tariffs that President Trump is imposing on China are actually hurting U.S. consumers more than the Chinese, I guess, if you want to say, the way the rules that the Chinese are playing with us. So in other words, the Chinese government, the tariffs are actually hurting us more. Well, here's how it works. Say you own a business, okay? Say you own a business and you need steel in order to manufacture your product. The cost of importing steel from China has increased because of the tariff. Now, you as a business owner, say you own the company, you're going to pass along to the consumer, say me, or you're going to eat the cost of it. And so it's not it's not one thing across the board. People are still going to continue to buy. You're not going to go to the store and say, well, this light bulb costs $1.49 and this one costs $1.25. I'm going to buy that one. You're still going to go spend money. People are going to still spend money. We don't know exactly how long this is going to go on. So this may be a short term thing or this may continue and end up going into 2019 into 2020. And then of course into the election. And here's the concern. The concern is because China is really standing tough against Trump and Trump standing tough against China. Trump is doing this for the country's best interest in the long haul, but the reality is that if it goes into 2020 with the presidential election coming up, I don't think China is going to make a deal because they're going to say, well, maybe Trump doesn't get reelected and we'll just wait and see here. And what will the effect to the U.S. economy be in the short term if the tariffs are enacted? Well, to be honest with you, the economy is so strong. I mean, you look at it now. I mean, there have been 10 percent tariffs on and really the economy just keeps racing along. So right now as it stands, we really haven't seen it. We've had earnings season. It's been earnings season last month. We've had great earnings from companies. Apple has had great earnings. We've had we've had the market making brand new altum highs last week in the SMP. So as far as everything goes, everything looks fantastic. I would say for the market, you're going to see increased volatility with all of this going on. We've had the market is acting like an angel this year. Don't expect that to continue if this continues. So how much, though, can the economy, with all that strength that you just described, how much can it absorb a trade war? I think it can absorb more than people think that it can. People are worried about the market. Stock swish tip of the day is this, hang in there. The market, I believe, holds the uptrend even if we see some violent swings that could continue into the summer. I would, if you have investments long term in the market, I believe the market hits up over and makes new highs again. I believe it happens even if this deal does not get done. Even if this goes into 2020, I think the market is going to hold the uptrend. The market is so strong, not to say. So you're not advising anyone to sell? No. You're advising maybe to buy on the downturn? For 2% off the highs. I wouldn't say buy here because who knows how much farther we can fall. I would say watch Friday. Friday is a critical day because, again, if a deal isn't done, which I don't think it will be, low odds a deal is done. In fact, I think low odds a deal is done at all this year. And it's really because you have to understand the Chinese culture. Remember, a lot of these corporations are owned and portioned by the state, okay? The state. I looked it up online. There's Fortune 500 of the top 10 companies in the world, Fortune 500 companies. Guess what is the top four? One is Walmart, which is a U.S. company. And the other ones, two, three, and four are Chinese corporations owned by China. You have to remember the type of government that China has. It is a communist government. That's right. So it's totally different. So guess what? China is going to support their own corporations that they own in and have an interest in. Whereas in the U.S., again, if you're a business owner, well, the government isn't going to give you extra money for that steal. You see the difference. So this is where it's a problem. But overall, in the long haul, this is something presidents should have done a long, long time ago. Trump, if he has a sentence granted, it'll never get done. And I don't think if Trump can get it done, then no one can get it done. So someone who studies the economy and studies the stock market, you think he's doing the right thing? I think he's doing the right thing in the long haul. But I don't say there's not going to be any short-term pain. That's why I'm saying long haul, the market looks good, long haul, the economy looks good, long haul, it's going to benefit us. You can't forget where China's, their end game is. They want to be the number one superpower in the world. So either we want to let it up and say, oh, fine, okay. Or we want to hang tough. And that is where it is at right now. If the economy was in a different shape, I'd say maybe worry a little bit more. But with the market rolling along, I think there's more danger of interest rates not going long study with the Fed to the economy and the market than there is with this tariff thing. It's almost like the market is absorbed. Other factors you have your eye on, not just the trade war. Other things. All right. Yes, exactly. All right. We'll talk about that next time. We will. Thank you so much for coming to see us. Thank you.