Ford Motor, which also does a large amount of business in China, saw its stock pull back about 0.8 percent. Meanwhile, Caterpillar and Boeing — considered to be two bellwethers for trade tensions on Wall Street —both dropped at least 3.5 percent.
Shares of railroads and package shippers dropped on fears a trade war would slow the economy and reduce the amount of imported goods for them to ship around the country. FedEx and J.B. Hunt both dropped more than 1.5 percent. CSX lost 1.9 percent.
"With each escalation, you get more worried that things will get out of hand," said Bob Phillips, managing principal at Spectrum Management Group. "I know Trump wants to do something to help out blue-collar workers, but ... each time you ratchet this up, China has to come out strong."
Trump asked the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs, at a rate of 10 percent. If China "refuses to change its practices" and insists on continuing with the new tariffs it recently declared, then the additional levies would be imposed on Beijing, Trump said Monday night.
Soon after, the Chinese Commerce Ministry issued a response, stating that the latest threat of more tariffs violates previous negotiations and consensus reached between both the U.S. and China. "The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends," the ministry said.
Further tension in U.S.-China relations could end up hurting some iconic U.S. companies the most, said Jim O'Neill, an economist and the chairman of think tank Chatham House.
"I often say to people that America's most iconic modern company, Apple, has for three years sold more iPhones to Greater China than it has to the U.S. So ultimately, if the U.S. genuinely takes this kind of belligerent stance, it's going to be the U.S.' best-growing companies that will suffer," O'Neill told CNBC.
Treasury prices rose on Tuesday, with investors looking for safety amid the stock-market sell-off. The benchmark 10-year note yield dropped to 2.893 percent from about 2.91 percent on Monday.
Commodities, meanwhile, fell sharply as soybeans futures reached their lowest prices in more than two years.
Lindsey Piegza, chief economist at Stifel, said in a note that "we estimate tariffs on goods both ways would likely shave off a few tenths of a percentage point off each country's GDP. While a seemingly minimal impact, as the domestic economy continues to struggle to maintain a near 2% growth rate, a loss of even a few tenths is an unwelcome impact.
"Additionally, the fear from here is a continued back and forth, escalating trade penalties on both sides with a further negative impact on growth," she said.
