The drop comes after a surprise 3.3 percent rebound in July despite the yearlong battle with Washington and weakening global demand.
Yields on benchmark 10-year Treasury notes dropped to their lowest since mid-2016 as the latest salvos in the China-US trade war shook confidence in the world economy and sent investors to the safe harbour of gold.
US President Donald Trump says he would be raising planned tariffs on $300 billion in Chinese goods from 10 percent to 15 percent.
China said it would impose additional tariffs on a total of 5,078 US products that include agricultural products, crude oil, small aircraft and cars. Tariffs on some products would take effect on September 1 and others on December 15.
Also boosting investor sentiments were comments from China that the Washington and Beijing held discussions on trade overnight and would talk again the next two weeks.
The United States delays tariffs on Chinese-made cellphones, laptop computers and other items and removes other Chinese imports from its target list altogether.
The yuan has now weakened around 1.5 percent since US President Donald Trump threatened last Thursday to impose more tariffs on Chinese goods from September 1.
The US President Donald Trump has already imposed 25% tariffs on $250 billion in Chinese products, and Beijing has retaliated by taxing $110 billion in US goods.
Trade conflicts are undercutting investment, International Monetary Fund says in report, while urging countries to avoid using tariffs in place of negotiations.
The decision comes two months after US President Donald Trump agreed to lift tariffs on steel and aluminum from Mexico and Canada after the three nations agreed on a revised North American free trade pact.
The US-China trade war is already having a negative impact on the global economy. If Donald Trump and Xi Jinping cannot agree to new terms at the G20 Summit, it will affect everyone.
The new duties take effect from Sunday, a government notification said, in the latest trade row since US President Donald Trump took office in 2017 vowing to act against countries with which Washington has a large trade deficit.
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