US stocks closed sharply lower Monday, after President Donald Trump slapped fresh sanctions against China and levies on Mexico and Canada neared imposition, while European defense shares soared as the European Union sought increased military spending over Ukraine.

The White House said Trump had signed an executive order raising tariffs on China to 20 percent, shortly after Trump seemed to rule out any change to the planned 25 percent tariffs against Mexico and Canada. 

"The tariffs, you know, they're all set, they go into effect tomorrow," Trump said at the White House when a reporter asked whether the levies against the two US trading partners would come into force on Tuesday.

The Dow Jones Industrial Average slipped 1.5 percent, while the broad-based S&P lost 1.8 percent, and the tech-rich Nasdaq took a harsher tumble, closing down 2.6 percent. 

The CBOE Volatility Index, or VIX — colloquially known as Wall Street's "fear gauge" — surged, hitting its highest level since December.

But despite the uncertainty, "the backdrop remains a favorable one," Angelo Kourkafas from Edward Jones told AFP.

Monday's trading, he added, was "consistent with the choppiness we have seen over the past three months" in the financial markets.

European defense stocks surge

In Europe, BAE Systems surged 14 percent, helping London's benchmark FTSE 100 index to a record high, the latest in a series over recent months.

French defense group Thales won more than 16 percent and German peer Rheinmetall rallied 15 percent.

"Europe is rallying round Ukraine and it's hard to see defense stocks not enjoying years of orders," noted Neil Wilson, analyst at TipRanks.

European Commission chief Ursula von der Leyen warned on Sunday that "we urgently have to rearm Europe" as leaders from the continent met in London for crisis talks over Ukraine.

"It's important we prepare for the worst," she said, a few days after British Prime Minister Keir Starmer pledged to boost UK defense spending to 2.5 percent of economic output by 2027.

In Germany, the two parties hoping to form the next government are planning to invest hundreds of billions of euros into defense and infrastructure when in power, the Bild newspaper reported Sunday.

The DAX jumped 2.6 percent, setting a record high, with shares in carmakers jumping after the EU signaled it will give them greater leeway in meeting lower CO2 emissions targets.

Asian stock markets largely gained Monday, with investors eyeing a potential Chinese stimulus package while bracing for US tariffs.

Hong Kong and Shanghai stock markets shed early gains ahead of the key Chinese parliamentary meeting that opens on Wednesday, while Tokyo closed up 1.7 percent.

Chinese stocks had been boosted in part by data released on Saturday that showed manufacturing activity grew in February after a dip the previous month.

Hong Kong was helped by the blockbuster IPO of bubble-tea and drinks giant Mixue Group, which saw its shares jump 40 percent.

Key figures (as of 21:45 GMT)

New York - Dow: DOWN 1.5 percent at 43,191.24 points (close) 

New York - S&P 500: DOWN 1.8 percent at 5,849.72 (close) 

New York - Nasdaq Composite: DOWN 2.6 percent at 18,350.19 (close) 

London - FTSE 100: UP 0.7 percent at 8,871.31 (close) 

Paris - CAC 40: UP 1.1 percent at 8,199.71 (close)

Frankfurt - DAX: UP 2.6 percent at 23,147.02 (close)

Tokyo - Nikkei 225: UP 1.7 percent at 37,785.47 (close)

Hong Kong - Hang Seng Index: UP 0.3 percent at 23,006.27 (close)

Shanghai - Composite: DOWN 0.1 percent at 3,316.93 (close)

Euro/dollar: UP at $1.0485 from $1.0384 on Friday

Pound/dollar: UP at $1.2700 from $1.2584 

Dollar/yen: DOWN at 149.47 from 149.52 yen

Euro/pound: UP at 82.56 pence from 82.51 pence 

West Texas Intermediate: DOWN 2.0 percent at $68.37 per barrel

Brent North Sea Crude: DOWN 2.1 percent at $71.62 per barrel