By Alisha Haridasani

Markets closed sharply lower on Monday after already-tense trade tensions with China escalated again, and investors saw the first sign of American manufacturers feeling the impact of the Trump administration’s increasingly protectionist stance.

The Treasury Department is reportedly drawing up rules that would prohibit any firm with at least 25 percent Chinese ownership from buying American companies that produce “industrially significant technology.” The administration is also exploring controlling the export of such technologies to China, citing national security concerns. The measures are expected to be officially announced later this week.

The news dragged down markets, with the Dow tumbling as much as 500 points before ending the day down nearly 330. The tech-heavy Nasdaq dropped by around 2 percent. Stocks pared some of their losses, though, after Peter Navarro, one of President Trump's top trade advisers, said on CNBC that restrictions on foreign tech investments weren't on the table.

But Chinese investment in American companies has been falling even without any proposed restrictions, said Axios business editor Dan Primack. That number is already down 90 percent this year.

It's the potential controls on exports to China that could ultimately backfire and hit U.S. companies hard, said Primack.

"When you look at Silicon Valley, and you talk about where is your growth, particularly among hardware manufacturers, they almost all say China," he said. "We're selling more and more to China ー could that be in some way curtailed?"

The news is the latest in a series of hits against China intended to punish the country for unfair trade practices. Last week, the president threatened to slap tariffs on as much as $450 billion worth of Chinese imports. That posturing came in response to China’s promise to retaliate against an earlier round of U.S. tariffs on $50 billion of goods from the country.

And it's not just trade with China that's affecting U.S. companies. On Monday, motorcycle maker Harley-Davidson announced plans to shift some production outside of the U.S. as a way of getting around retaliatory tariffs imposed by the EU that could amount to losses of as much as $100 million a year.

“Increasing international production to alleviate the EU tariff burden is not the company’s preference but represents the only sustainable option,” the company said in a regulatory filing.

The EU imposed taxes on more than 100 U.S. products worth over $3 billion that went into effect on Friday in response to Trump’s tariffs on European steel and aluminium imports.

The motorcycle brand, which sells almost 40 percent of its products to international markets, is one of the first American companies to feel the negative impact of Trump’s trade policies that have antagonized allies Canada and Mexico as well.

Harley-Davidson shares closed the day almost 6 percent lower, their biggest one-day drop since late January.

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