US stocks closed sharply lower on Monday, after US President Donald Trump slapped fresh sanctions against China and levies on Mexico and Canada neared imposition, while European defence 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 per cent, shortly after Trump seemed to rule out any change to the planned 25 per cent tariffs against Mexico and Canada.

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

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

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

French defence group Thales won more than 16 per cent and German peer Rheinmetall rallied 15 per cent. (AFP)