- China announced it would impose new tariffs on another $75 billion worth of U.S. goods, including autos.
- President Trump ordered American companies to "immediately start looking for an alternative to China."
- Fed Chairman Powell said the central bank will "act as appropriate" to sustain the U.S. economic expansion.
European stocks closed lower on Friday as trade tensions between the world's two largest economies heightened.
The pan-European Stoxx 600 closed provisionally about 0.7% lower, with most sectors in negative territory. Autos stocks suffered sharp losses by the close, slumping around 2%.
The Chinese State Council said it decided to slap tariffs ranging from 5% to 10% on the additional imports in two batches, effective on September 1 and December 15. A 25% tariff will also be places on U.S. cars and 5% on auto parts, with effect from December 15.
Following that announcement, President Donald Trump said he was ordering American companies to "immediately start looking for an alternative to China." The U.S. leader urged postal carriers including FedEx and Amazon to "SEARCH FOR & REFUSE all deliveries of Fentanyl from China (or anywhere else!)."
Investors also digested remarks from Powell at the central bank's Jackson Hole symposium on Friday. The Fed chief said in a speech that the Fed "will act as appropriate to sustain the expansion," a phrase he has used several times in the recent past.
"The global growth outlook has been deteriorating since the middle of last year," Powell said. "Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States."
In an apparent response, Trump questioned whether America's "biggest enemy" was Powell or Chinese President Xi Jinping.
Powell's remarks initially buoyed sentiment, but the latest trade escalation tipped sentiment to the downside. On Wall Street, the Dow Jones Industrial Average dived 370 points, while the Nasdaq and S&P 500 indexes were also sharply lower.
The Group of Seven (G-7) annual summit begins on Saturday in France, bringing together the leaders of Britain, Canada, France, Germany, Italy, Japan and the United States, and is expected to end without a joint communique for the first time in its 44-year history due to deepening rifts between the heads of state.
Brexit remains on the radar after U.K. Prime Minister Boris Johnson met with German Chancellor Angela Merkel and French President Emmanuel Macron this week for talks.
Macron on Thursday signaled confidence that a solution could be found regarding a slightly amended withdrawal agreement, but reiterated that the backstop for the Republic of Ireland-Northern Ireland border is "indispensable."
Back in Europe, Italian President Sergio Mattarella said several parties had indicated that they need more time to work out a solution to the ongoing government crisis, and will report back early next week. Luigi di Maio, leader of the anti-establishment Five Star Movement (M5S), said his party is working to avoid snap elections.
In corporate news, Deutsche Bank has agreed to pay $16 million to the U.S. Securities and Exchange Commission to settle charges that it violated the Foreign Corrupt Practices Act. The German lender's stock traded 0.8% higher at the start of the session.
Meanwhile, the Financial Times reported that the EU is considering plans for a 100 billion euro ($110.71 billion) sovereign wealth fund to finance European industrial champions in order to compete with U.S. corporate giants, such as Apple and Google.
Danish hospital equipment maker Ambu gained 7% to top the Stoxx 600, while Simcorp shares were also up 5% after the Danish IT company posted strong second-quarter results and upgraded its earnings forecast.
At the bottom of the European blue chip index, Rockwool International's stock tumbled nearly 16% after its second-quarter results.
-CNBC's Yun Li contributed to this report.