Stocks fell a day after Washington accused Beijing of backtracking on key commitments, marking a reverse in hopes which saw markets rally to new highs in recent days.
Global stock markets tumbled on Tuesday as the US and China moved closer to an escalation of their already costly trade war.
The Dow Jones Industrial Average was down more than 470 points amid a broad sell-off on Wall Street where investors are concerned about fallout of the trade dispute between world's two biggest economies.
Across the Atlantic, the FTSEEurofirst 300 index ended the day 1.4 percent lower, marking its steepest single-day drop since February, according to the Financial Times.
US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin said late on Monday that China had backtracked from commitments made during trade negotiations.
Those comments followed President Donald Trump's unexpected statement a day earlier that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent.
Beijing said on Tuesday that Chinese Vice Premier Liu He will visit the United States on Thursday and Friday for trade talks.
Additional tariffs are set to take effect on Friday if a trade agreement is not reached by then.
Both sides had signaled progress was being made toward a resolution in recent weeks.
As it turns out, the President threatening a trade war with China isn't great for investors. The Dow Jones is down 450+ points today. pic.twitter.com/IA1Ib1b0HG— Shane Morris (@IamShaneMorris) May 7, 2019
Buoyed by those signs, as well as a more dovish stance on interest rates by the Federal Reserve, investors had furiously bought stocks and pushed the S&P 500 and Nasdaq to all-time highs last week.
All major indexes still have double-digit gains for the year.
Analysts said the market was vulnerable to any reversals in the trade talks.
This week investors have dumped shares of companies that bring in significant revenue from China, such as those in the technology and industrial sectors.
Banks have also taken heavy losses.
"This is a game of poker and the US is playing their hand," said Doug Cote, chief market strategist at Voya Investment Management.
"Let's say the worst happens and they raise tariffs on Friday, well you're going to get another buying opportunity."
Every sector fell. Technology companies, which tend to do a lot of business with China and would suffer greatly in a protracted trade war, led the decline. Apple fell 2.7 percent.