* Markets on edge before July 6 China tariff deadline
* Dell gains on deal to buy out VMware tracking stock
* Tesla jumps on meeting Model 3 milestone
* Futures drop: Dow 0.69 pct, S&P 0.61 pct, Nasdaq 0.71 pct (Adds comments, details, prices)
By Amy Caren Daniel
July 2 (Reuters) - Wall Street was set to start the first trading day of the second half of this year with declines, as heightening risk of a tariff war between Washington and its trading partners continued to weigh on sentiments.
Share of trade-sensitive U.S. companies were lower in premarket trading, with Boeing and Caterpillar down about 1 percent, while chipmakers also slid along with a host of U.S.-listed shares of Chinese companies.
Shanghai's blue chip index slid nearly 3 percent, days before the U.S. tariff on $34 billion worth of Chinese goods comes into effect on July 6, posing threats of a similar response from Beijing.
Trade war worries were also being compounded by a threat from the European Union to hit the United States with almost $300 billion in retaliatory tariffs.
Canada on Friday struck back at the Trump administration over U.S. steel and aluminum tariffs, vowing to impose punitive measures on $12.63 billion worth of American goods.
Global stocks were also facing the impact of a threat to Chancellor Angela Merkel's German ruling coalition, while the Mexican peso whipsawed after Andres Manuel Lopez Obrador's election victory set the stage for the most left-wing government in the country's democratic history at a time of tense relations with the United States.
"There's not a lot of good news for markets to start the week," Scott Brown, chief economist at Raymond James said.
Brown said with a half-day for the markets on Tuesday and the July fourth holiday coming up, trading volumes could be thin, which might exaggerate any market move.
Also weighing on the sentiment was a drop in crude prices.
At 9:00 a.m. ET, Dow e-minis were down 168 points, or 0.69 percent. S&P 500 e-minis were down 16.5 points, or 0.61 percent and Nasdaq 100 e-minis were down 54.25 points, or 0.77 percent.
Twenty-five of the 30 stocks of the Dow Jones Industrial Average were trading in the red premarket, with Nike , Caterpillar, Boeing, Visa and Intel trading at least 1 percent lower.
Shares of chipmakers Micron, AMD and Nvidia were down more than 1 percent. Chipmakers depend on China for a large portion of their revenue.
Among Chinese companies, Alibaba fell 2.2 percent, while JD.com fell 2.1 percent.
Among the bright spots was Tesla, which jumped 4.2 percent after the electric carmaker was said to have met its target of producing 5,000 Model 3 sedans per week.
Dell Technologies Inc jumped 11.1 percent after agreeing to buy the tracking stock of VMware, taking a step closer to become a public company again. VMware was up 9.1 percent. (Reporting by Amy Caren Daniel in Bengaluru)