Trump, who has railed against what he describes as China's unfair trade practices and threatened to impose punitive levies on all its imports, softened his tone in a series of remarks expressing optimism about reaching a trade deal with Beijing.
"Larger effects of tariffs on prices also imply a larger hit to real income and consequently to GDP", Goldman Sachs analysts wrote in a note to investors Monday.
"Furthermore, as there isn't a clear schedule for meetings between Chinese and US negotiators, markets are likely to be more volatile".
Lyft Inc dropped 5.8 percent and Tesla Inc' shares fell 5.2 percent, the lowest in more than two years.
Still, since Beijing's tariff increases only take effect on June 1 and those raised by Washington apply only to goods shipped after May 10, which will take a couple weeks or more to reach the US, there is still time available to find a compromise in the festering dispute over Chinese efforts to gain a lead in advanced technologies through means that the Trump administration says are unfair and violate world trade rules.
Hong Kong led losses as the market reopened after a long weekend.
There are concerns that the pain from tariffs could spread to the broader USA economy, with businesses raising prices on a range of consumer goods. In Asia, the Shanghai Composite index fell 1.2%.
The worldwide sell-off reflects fears of slower economic growth and rising geopolitical tensions, as China plans to respond to a U.S. tariff hike last Friday by raising duties on American imports.
China said it would impose higher tariffs on $60 billion in U.S. goods despite President Donald Trump's warnings not to retaliate against additional tariffs on Chinese imports announced by the White House on Friday. Investors expect tariffs could lift corporate costs and lower profit margins, while continued uncertainty surrounding a trade deal will hinder the ability of companies to plan or make capital expenditures.
The time before then will be "highly volatile" for financial markets, said Macquarie Bank analysts in a report.
In a barrage of tweets posted late morning BST on Tuesday, Trump said that "in one-year tariffs have rebuilt our steel industry - it is booming!" The S&P 500 also saw its biggest decrease since early January.
USA 10-year Treasury yields, however, edged away from Monday's six-week lows, thanks to the slightly brighter tone.
Elsewhere in the market, generic drug developers slumped after many of them were accused of artificially inflating and manipulating prices.
Teva, which was specifically mentioned, sank 16.8%.
"As soon as he sent out the tweet that he's not that concerned about the dispute at this point gave the market an element of relief rally", said Sid Mokhtari, executive director of institutional equity research at CIBC. The stock had priced at $45 at its initial public offering but is now trading just below $37. It closed at $37.10.
The June crude contract was up 74 cents at US$61.78 per barrel and the June natural gas contract was up 3.8 cents at US$2.66 per mmBTU. Brent crude, the worldwide standard, closed 0.6% lower at $70.23 per barrel.
The FTSE 100 in Britain rose 0.9% to 7,230, while France's CAC 40 advanced 1.2% to 5,324.
Wholesale gasoline slid 1.3% to $1.96 per gallon.
Silver slipped 0.1% to $14.78 per ounce and copper rose 2% to $2.72 per pound.
The safe-haven yen lost ground as the mood improved, with the dollar strengthening 0.4% against the Japanese currency to 109.67. The euro rose to $1.1233 from $1.1223.